<< <i>As far as a collective group of humans taking note of how certain actions are driving them all to ruin and taking corrective measures...it's possible. But the Romans didn't manage it, nor the Egyptians, nor anyone I can think of. Civilization rise...and they fall. None have endured the final test and avoided the catastrophe. >>
And herein lies the greatest threat to all civilization, the status quo.
Civilizations appear in niches. They exploit the resources and develop economies to make the most use of the various attributes and wealth available. They invent rules of law and pol- icy to deal with regulating human greed and stupidity. They use procedure and learn what things work and what don't. All institutions and organizations get in a rut and are incapable of change even if the status quo no longer works or it becomes apparent it will change in the future. Individuals fear change. Companies stay far away from change so new ones spring up as markets change. But fundamental change is far more difficult.
Instead layers of new laws and regulation are adopted to address new issues. New procedure is added to existing procedure rather than revamping the entire process. The civilization will simply march in lock step to its demise.
The same will happen here someday and we have been making the same mistakes since the beginning. The ability to ament The Constitution has granted us no special ability to change nature or even to throw off no longer needed and outmoded policies.
God willing, it will be many years befor our bloated and moribound system can no longer func- tion in the real world.
Exactly, but the situation you describe, the status quo, is a late manifestation. There is no status quo in, say, our 13th century. Our civilization was still growing and developing, fulfilling its inherent potentialities in all fields. It's only when that ends that things become static, incapable of meaningful change, because the organism has already played out its possibilities. It may continue for any length of time, but it is no longer a living thing.
From that point, all change becomes the tearing apart of the order that was, replacing it with nothing. For us, this began with the French Revolution, and winds its way down to the social democracy today. False promises, all.
As man decays from within, government tries to impose from above what has been lost, but it cannot be. Self-regulation, self-discipline, all the old virtues, cannot be replaced by any government. Yet because it does not work, man decays more, and more government is pitched as the cure. It is a vicious, repeating, compounding cycle.
I don't necessarily think that the country is headed toward ruin quite as fast as some here would suggest. I still believe, albeit maybe stubbornly, that America can take note of and at least make an effort at fixing its major problems as it has done in the past...especially something as serious as economic ruin. I'm just not ready to throw in the towel and stock food, water, and ammunition just yet.
Maybe we are not headed for ruin and no need for stocking up on provisions. However, there are some basic economic days of reckoning that need to be accounted for and until they are we are on borrowed time.
I am not one to preach but read about the period right before the depression. Things were booming. Not saying we will have the same but spaghetti happens and it manifests itself from the events not on the radar. Just prior to 9/11 if someone outlined such a plot and the followup of events until today they would have been laughed at.
Bottomline, I think life styles in the US are going to have to take a major adjustment in a southerly direction. Days of $4k plasma TV, his/her $50k SUVs, etc. all on a sub $100k salary are going to be a memory. I hope I am wrong but I doubt it.
I do not know who which Wall Street firm, or financial media Guru group invented that phrase, “gloom and doom” but it has become the catchword for all of those that recommend caution in their financial dealings.
If you are not charging up your credit cards, well you must be a gloom and doomer, if you want to pay off your mortgage rather than buying some companies paper assets, well you must be a gloom and doomer, If you would rather buy coins, or gold and silver rather than owning all this paper the government prints by the truckload each day, well you must be a gloom and doomer, If you would prefer have your cash money close to home in a bank rather than buying into the latest pumped up option ridden internet deal, well you must be a gloom and doomer, if you want to see the interest rates go up, so you can make a few dollars more on your savings than inflation eats away, well you must be a gloom and doomer.
How in the hell did the conservative careful investor become the gloom and doomer?
How many posts have been on this thread the last two years that advised people seriously to go under ground with their guns?
I might point out to you doubting Thomas’s that read here, that over the last two years, if you had bought commodities, and not taken out an ARM to pay off your credit cards, and would have kept your cash money in the bank or I bonds, or some of the other many crazy ideas that have been put forward here by all the “gloom and doomers “ you would have been much better off by FAR than any advice you might have taken from that blue shoed salesman at your local stock brokerage office.
To add to my earlier post, and I think I can speak for all the “gloom and doomers” here, what we truly seek is just one simple principle, we want the truth. We want the truth the whole truth and nothing but the truth, from the governments we pay more than half of our hard earned money to. We want the truth from our employees that run the companies where our pension money goes, we want the truth about the real financial condition of our country, and what faces our children, we want truth about how much money our bankers are printing, and what that is doing to the value of our savings.
We want honest government oversight in our SEC officials that force companies to disclose their full liabilities of pension and medical costs promised to workers.
We want people to go to jail for defrauding us in whatever business form, be it out right thievery, back dating options, or cooking the books.
We want laws that prevent speculators from running the prices of all commodities up and down, and costing all American families more to live each week.
We want a real CPI that includes all the necessities of life in the correct proportions.
We want full and constant disclosure of where our social security, and Medicare money is going.
We want new GAP accounting rules that force our publicly owned corporations to fully disclose, and subtract, ALL current and future liabilities from our balance sheets.
Until such time as we receive our honesty in full measure we are going to help one another discover the truth by any means at our disposal, and one of our means is this thread.
Here is a little potential good news for a change. Lets see if it becomes law!
July 28 (Bloomberg) -- The House of Representatives passed legislation overhauling the U.S. private pension system and requiring more than 30,000 companies to fully fund their pension plans.
The legislation, passed by a vote of 279-131, is designed in part to protect the Pension Benefit Guaranty Corp., the quasi- governmental agency that insures U.S. defined benefit pensions, which reported a $22.8 billion deficit this year.
Companies underfunded their plans last year by $450 billion, according to the Labor Department. Many lawmakers say a multibillion dollar taxpayer bailout of the PBGC may be needed if nothing is done.
Nicely said Goldsaint. Most companies have been in the process for several years of tossing out the old style pension plans and starting over (defined contribution vs. defined benefit). Still, in both cases, we assume they are doing the right thing with our money.
am not one to preach but read about the period right before the depression. Things were booming. Not saying we will have the same but spaghetti happens and it manifests itself from the events not on the radar
The events (boom) leading up to the great depression closely parallel what we have today. In the first few years following the creation of the FED in 1913 the money supply expanded by some 60%. Those guys knew what "free" money was all about. The easier credit continued right up to 1929. "No one saw it coming." Maybe or maybe not. A few did as they got out in time. Joe Kennedy was one of those who took advantage of the circumstances. And the FED compounded the whole thing by keeping all the gold locked up in reserves until it was too late. Had they lended at the time the severity would not have been there.
You can liken the creation of the FED in 1913 to the removal of the gold standard in 1971. Each event started a new era of easy money, excesses, etc. Our current one has lasted quite a bit longer than the first one as our economy is far more complex today with many more effective safety valves (massive central bank lending for one at the drop of a hat). But to say that the 1920's was a boom period based on "real wealth creation" is like saying the Nasdaq miracle during the 1990's was real too. The boom of the 1920's had its share of massive speculation, smoke and mirrors as well, the basic output of central bank policies.
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
Guess what: Drucker's last two sentences also apply to nations, too. But some people apparently think my country will need to stop everything and liquidate its assets against its liabilities—sometime in the next generation or two. I disagree strongly, and I have some very serious questions for anyone who actually believes it.
In any case, Drucker was being polite. Here’s how I’d say it:
“Accountants count what’s easy to count—not what counts.”
over the last two years, if you had bought commodities, and not taken out an ARM to pay off your credit cards, and would have kept your cash money in the bank or I bonds, or some of the other many crazy ideas that have been put forward here by all the “gloom and doomers “ you would have been much better off by FAR than any advice you might have taken from that blue shoed salesman at your local stock brokerage office.
Actually the SP500 is up over 15% the last 24mos and TIPS [govt bonds] are down about 2-3%: SP500 vs. TIPS The TIPS and I bonds have proven to be less profitable than they should be as the gov't cheats on the inflation rates. Nice racket huh?
My advisor whom I used for nearly 25yrs avoided the tech debacle[ongoing], got me into foreign stocks [especially emerging markets] and had me buying the commodities [mostly oil] back in 2000-2. At the time his advice did seem weird but as long as we were making money who cares. Interestingly he has sold out all the above except for token amount and special situations. Now have a hodgepodge of diversified non tech holdings and sovereign bonds paying nearly 7%. A great advisor makes all the difference in the world!
Investments come and go, that will never change. Right now it's our past consumption [i.e. debt], current attitudes, sharing resources [higher prices] in a global world and a too politiczed [w/o leadership] gov't which endangers us more than anything else.
Claus, Please allow me to take this guy apart for you!
First I think we need a name for this group of gentleman, how about Happy Harpies?
This gentleman says, “A scary article was just published a few days ago, titled Is the United States Bankrupt? We see that title all the time, because it’s a sure-fire grabber that sells newspapers, magazines, and books, lickety-split. As I recall, the last time I saw that title was six or seven weeks ago in the grocery store checkout line... but I just can’t remember if it was gracing the front page of the Globe, the Weekly World News, or the National Enquirer.”
He does say where the article came from, so either he thinks our Fed is full of nuts trying to sell their articles, or we should pay no attention to what they tell us if we don’t like the news.
He goes on, and this is your first key to whether you should even read further.
“ Having spent much of my career in corporate finance,”
This is the statement I really love,
“Was it assumed that the debt would eventually have to be paid off? If so, when and why was it assumed that debt rollover would become impossible?”
I wonder how high this guy’s credit card is? Does he ever take into account who has buying all this debt? The Arabs, China etc.
I also noticed that this very bright guy made no mention of the fact that we are continuing to add a minimum of $1,000,000,000,000 plus (ONE TRILLION) dollars in debt to the pile now each and every year?
$1 trillion per year in debt. I saw one Congressman on CNN last week who showed some simple bar graphs that "proved" to him that overall debt was better today than in the past. He compared total debt to GDP and "proved" that the number was in line with times past and actually lower percentage-wise. While this appears to be a sound argument I have to wonder if the goosed GDP, and goosed GDP "deflator" that affects the goosed GDP, were factored out of his numbers? A percent error here or there makes a huge difference Congressman! Go back and compare today's numbers to previous periods using the same old time rules. Then we can talk.
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
It's what may not show up on the balance sheet that affects the company's bottom line are things like "derivatives." Enron's abuse was classic. What looks good on paper may stink in reality. Frankly, the entire derivatives mess is essentially impossible to accurately value day to day or even year to year. There is no one set way that is used to estimate value and it usually differs wildly from the same parties who are partners on the same contract. Pick whatever you want and go with it. Being mostly unregulated, derivatives make the game far tougher. Basically what Goldsaint said, just tell us the truth, and leave out the games. Problem is, most of us can't handle the truth or don't want to really hear it.
<< <i>$1 trillion per year in debt. I saw one Congressman on CNN last week who showed some simple bar graphs that "proved" to him that overall debt was better today than in the past. He compared total debt to GDP and "proved" that the number was in line with times past and actually lower percentage-wise. While this appears to be a sound argument I have to wonder if the goosed GDP, and goosed GDP "deflator" that affects the goosed GDP, were factored out of his numbers? A percent error here or there makes a huge difference Congressman! Go back and compare today's numbers to previous periods using the same old time rules. Then we can talk.
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
It's what may not show up on the balance sheet that affects the company's bottom line are things like "derivatives." Enron's abuse was classic. What looks good on paper may stink in reality. Frankly, the entire derivatives mess is essentially impossible to accurately value day to day or even year to year. There is no one set way that is used to estimate value and it usually differs wildly from the same parties who are partners on the same contract. Pick whatever you want and go with it. Being mostly unregulated, derivatives make the game far tougher. Basically what Goldsaint said, just tell us the truth, and leave out the games. Problem is, most of us can't handle the truth or don't want to really hear it.
roadrunner >>
It's not the numbers themselves that concern be nearly so much as the underlying trends. Other than the war on terror the entire post-soviet collapse era is a golden period to correct problems, build surpluses and create the conditions best suited to sustain the country during the period when boomers retire. Instead existing problems mostly worsened and virtually the entire period has been filled with red ink despite a republican Congress during most of the interval. Education, perhaps, is slightly improved but this is one of the greatest failings and will have the most impact in the long term.
This isn't to say I'm pessimistic, merely that the clock continues to tick.
<< <i>Strong bullion prices, a successful takeover of Placer Dome Ltd., and the successful launch of three new mines pushed Barrick Gold Corp.'s second-quarter profit so high it eclipsed the company's record for full-year earnings. >>
<< <i>Barrick reported profit of US$459-million (US53 cents a share) on revenue of US$2-billion in the second quarter ended June 30, compared with profit of US$47-million (US9 cents) on revenue of US$1.09-billion in the same period a year ago. >>
<< <i>The average price Barrick received for its gold rose by 40% quarter-over-quarter, while costs have risen only 10%. As a result, the company's operating cash flow shot to US73 cents a share for the second quarter, up from US19 cents in the previous year. >>
Robert Scot: Engraving Liberty - biography of US Mint's first chief engraver
"Kind of like you can go back and look at past lottery winners to see who did (or did not) know what numbers would come up?"
I've heard of people like that. Folks that just take a chance and hope that they are right, surely some of them do get lucky from time to time. Much different group than those that pay attention, stay prepared, and have a plan.
<< <i>Instead existing problems mostly worsened and virtually the entire period has been filled with red ink despite a republican Congress during most of the interval. >>
I am "this guy." Sounds like you have a question or two for me, or at least a misunderstanding or two about me. Send me a private email, please, because I have a few questions for you. My email address is freely available at my website.
<< <i>Instead existing problems mostly worsened and virtually the entire period has been filled with red ink despite a republican Congress during most of the interval. >>
Hmmmm.... >>
I didn't mean to sound partisan since a republocrat is a republocrat, but the republicans are supposed to be the party to cut spending and reduce in the growth rate of the federal government. It's a little frightening when the "perfect storm" for fixing excesses comes to- gether and no progress is made. There's no excuse for the worsening mess in Washington and the republicans probably bear a disproportionate share of the blame.
Yes bankrupted a Nation: What is to follow with the Muslim world taking on all of the Christian world...thanks to America selling out our technology to Third World Countries for them to sell them to Iran...India, China, Russia, N. Korea, Cuba...Who is our Real Enemy...it is our own Government! The damage has been done...what are the alternatives...we shall see in days and weeks to come....Lebanon was not our war...but it is gonna be! Out of date Refineries and lack of drilled Wells in this Country that are not capable of producing enough oil to sustain this nation...Just what kind of position are we in....We have been run around by a bunch of Renegade and Uneducated politicians who have made deals which only benefited themselves and could not see the repercussion of their actions which could take this world into the Greatest War Known to Mankind....Only thing we have is an Air Force which they do not have...What do they have that we don't...OIL,Guirella Warriors and masses of People willing to die....and the real question is...FOR WHAT! The Thing we should all do is Thank Our United States Government for selling out the American People and outsourcing our jobs and putting the What should have been Secret Technology in the hands of people who didn't give a Rats AZZ about what harm would come with selling this Technology to Third Worlds...How are we to fight this War Fairley and evenly...I say the first nuclear war head put into the air...would mean total annihilation of the country that releases it....Thanks to the United States Government, which has allowed it all to happen...Now tell me who is Evil! Or is it Politicians who are more stupid than their so call enemy!
Steve, welcome to our 18-month discussion on our economy, and thank you for your offer to answer some of my questions.
I think it is fantastic that you are willing to come here and participate. We seldom get nation economic writers here to help answer questions.
First please allow me to make two apologies, first I am sorry for referring to you as “this guy” perhaps I am blind, but I did not see your name on the article posted. Second please don’t take offense at my posting comments on your article when you were not here to respond. I can assure you that you were not singled out; dozens if not hundreds of articles have been posted here with many varying comments.
If it is agreeable to you I have one preliminary question that might help to ascertain how you derive your conclusions to your various theories.
First, on your web page, you have on the right, a national debt clock as well as a GDP clock. They appear to be the same as figures published by the U.S. government.
Also you made the following statement on your web post, and its attachment.
“ but anyone familiar with this weblog should be very familiar with the Debt-to-GDP statistic by now. (It's widely accepted by economists as a measure of a nation's debt load, and it compresses a significant amount of economic performance information into one single statistic.)”
Can I assume from these that the numbers you use in your calculations are in fact U.S. government annual published numbers?
Cool of you to come on board. We have had some real substantive discussions here.
One comment about your quotation of Peter Drucker which I disagree with ( a minor point). !st year accounting students do NOT learn balance sheets as liquidation valuation. Instead balance sheet represents historical cost modified in selected areas to a depreciated cost based on historical assumed useful lives. Land not bought for resale, for instance is never depreciated and furthermore it is never restated upward to reflect increasing market values. So actually, balance sheets are quite often LOWER than liquidations values.
Steve, I am running a little short of time today, and after looking at many pages on your website, I can see that the answer to my first question to you will be yes, you do use the regular published numbers put out by the U.S. government. If that is incorrect please let me know, but if that is the case here is my responses.
First of all I do not see how any economists can publish any credible theory, or for that matter even a statistical data compilation if they do not start with the correct numbers. Perhaps it might be published, but of course it would be meaningless.
I believe that even Laurence Kotlikoff’s paper cannot be correct if he did not have the correct numbers to start with, and I believe he did not. I believe he is using the same numbers that most establishment economist use, the U.S. Federal governments publicly published numbers, and these numbers are incorrect.
The published numbers are incorrect not by just a few billion here, and a few billion there, they are incorrect by trillions of dollars each year.
Steve, this is just my humble personal opinion, but I believe that perhaps you should change your debt clock by adding many many trillions of dollars. You might also consider getting copies of ALL the U.S. Gov. annual AUDITS, as those did below, and keep up with it year by year producing the ONLY real debt clock in the country.
After those changes are made you might rethink your theories on debt verses GDP, and who in the end would ever be able to pay for this ever-increasing debt?
In September of 2004 Walter J. Williams published this article, “U.S. Treasury Shows Actual 2003 Federal Deficit at $3.7 Trillion”
I won’t bore you with all the gory details but here is the main trust,
“The actual reported 2003 budget deficit was $374 billion, one-tenth the number cited above,
As detailed in this article, the actual annual shortfall in U.S. government operations for fiscal year 2003 (September 30) was $3.7 trillion. Put in perspective, that means if the U.S. Treasury had seized all wages and salaries in 2003 with a 100% income tax, there still would have been a deficit!”
Yesterday this article ran in USA Today again I just posted the crux of the article, but what I really love is the Bush administrations comment in the last paragraph. This of course is not just the current administration; this is the way they all have been for decades.
What's the real federal deficit? Updated 8/4/2006 9:55 AM ET
By Dennis Cauchon, USA TODAY The federal government keeps two sets of books.
The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005.
The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.
Congress has written its own accounting rules — which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel. Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household.
A growing number of Congress members and accounting experts say it's time for Congress to start using the audited financial statement when it makes budget decisions. They say accurate accounting would force Congress to show more restraint before approving popular measures to boost spending or cut taxes.
"We're a bottom-line culture, and we've been hiding the bottom line from the American people," says Rep. Jim Cooper, D-Tenn., a former investment banker. "It's not fair to them, and it's delusional on our part."
The House of Representatives supported Cooper's proposal this year to ask the president to include the audited numbers in his budgets, but the Senate did not consider the measure.
Good accounting is crucial at a time when the government faces long-term challenges in paying benefits to tens of millions of Americans for Medicare, Social Security and government pensions, say advocates of stricter accounting rules in federal budgeting.
"Accounting matters," says Harvard University law professor Howell Jackson, who specializes in business law. "The deficit number affects how politicians act. We need a good number so politicians can have a target worth looking at."
The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.”
Considering that the BLS goals would be to overstate GDP (and nicely done I might add) and understate debt, the ratio of debt/GDP is probably continually understated as well.
Derivatives on balance sheets (if they even appear) are no doubt counted in the easiest and most favorable way by each party to the transaction.
I'd like to know your real name, your age, and your background in economics and business finance. That's why I asked you to send me a private email. I'd still be willing to take this private, with the understanding that either of us would be free to subsequently publish any portion of that private exchange. (For example, I think portions of it would probably turn out to be instructional to readers of my website.) Taking the exchange private, in my experience, removes the public grandstanding factor from the exchange.
For now, just a little food for thought. You seem to be taking your evidence from the mainstream media. I have been researching this topic for fifteen years, and have a few questions that are never addressed by the politicians or the MSM. Regarding the USA Today article, and the "St. Louis Fed" article it is based on, I have been corresponding with several economists and accountants, some of them involved in the writing of those articles. I plan to publish an article at my blog as soon as I get confirmation from a primary source on one important point. Suffice it to say that, so far, I'm getting confirmation on my objections.
In the meantime, I have a few questions for you. In an earlier post, you ridiculed my assertion that, in a continually growing economy, the debt would never have to be paid back. (You share that opinion with many, many other people, by the way.) My questions to you: What is your understanding of the term "debt rollover"? Why do you think a nation's or corporation's debt management options are identical to an individual credit card holder's? How did you arrive at your conclusion that debt rollover will someday become impossible?
There are several other important questions, but let's just start with that one, as you proceed to "take me apart." Public or private, your choice.
“There are several other important questions, but let's just start with that one, as you proceed to "take me apart." Public or private, your choice.”
Steve please forgive my poor choices of words in my post from several weeks ago. I have no animosity toward you what so ever. We do not even know one another.
Any emotions directed your way are simply due to the information your readers see on your website, and how can you be at fault when you, like so many others are constantly feed lies from our very own government.
I cannot contact you via private message. Since you are new here you might notice you do not have the private message center in the top left corner functional. If you look at my post just above you will see a small gold lock, yours is missing.
Very briefly, I am 60 In the last forty years I held positions as CEO in three publicly held companies, and directorship in four. I am currently semi retired, but still am a director in two companies one of which is a publicly held mortgage company. In addition, I at one time was very involved in politics and considered by many to be my parties conservative leader in my state for a couple of years.
Yes I do get lots of my information from the public media, and believe it or not I am not such a fool that I believe everything I read. That said in my little world honesty still counts, and I can personally tell you from my personal contacts in Washington that the Federal government is lying on many fronts concerning the financial condition of our country.
In the simplest terms, it is possible to continue to roll over any debt literally forever as long as there is always a lender for that debt, but like a corporation, if the management lives way beyond its means year after year, decade after decade, one cannot assume that there will be such a lender.
The simple fact is that to hide all of their borrowing the U.S. congress has for decades borrowed billions of dollars each year from every source that would lend. In addition they have borrowed all of the American peoples money from every trust fund they had responsibility to protect, and that the trillions. The current administration that makes the comment below knows that the creditor of whom money was held in trust is coming for their money. They also know that there is going to be hell to pay, when this happens.
“The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.”
Why publish any debt numbers what so ever? The current administration could also say, there is no reason to publish any of these debt numbers, we can default on this debt and therefore it does not count!
There was a very interesting article on one of the sites below concerning the selling of America. Basically it began with the Federal reserve in 1913. The next step was FDR recalling gold and finally, shifting to a fiat economy in 1971. The barons of industry that hold the deeds to all this paper we have borrowed will eventually collect on it. At accounting time they won't want it in FRN's, but rather in real estate, corporations, businesses, homes, land, farms and other commodities and natural resources (gas, oil, coal, timber, metals, gems, etc). There will come a point where we won't be able to pay and the "good" baron will accomodate us by taking our assets and allowing us to live on his newly acquired land and assets....for a fee of course. This is how a bankruptcy works. You give up all rights and assets to your company and the new owner lets the employees keep their jobs and keep working...for him.
Deals were struck decades ago to transition over the wealth of the world. It's been happening before our very eyes. The massaged govt statistics are one tool to keep the masses unwary of the changes. Once they figure it out, it will be long past midnight.
RR I am sure you are correct, and assets are already moving into foreign hands as well.
I think this was posted earlier in the year, but this is a good example.
I am not sure that Steve2 has seen this, but the rollover, is not going as well as planned it appears. At least in the case of foreign debtor’s it appears that they are exchanging their debt for hard assets.
CNN March 6th 2006
How many large American assets are still owned by Americans? Every four years the U.S. Treasury department is supposed to send a report to Congress on just what American assets have been purchased by foreign governments, or companies. These reports are to be filed by law under the CIFUS rules. There have been no reports filed with the U.S. Congress since 1994. The stir over the DP World Ports transaction has encouraged many new questions about just who is buying American assets, and in what quantity.
According to some estimates there have been 1500 major U.S. assets sold to foreigners over the last twelve years, almost all of these have been approved quietly by the U.S. Treasury department. It appears only one may have been rejected, that being the Unocal deal last year. The Senate Banking committee now wants to know just what is going on. Foreign companies and governments awash with Trillions of U.S. dollars, and dollar backed securities, have been allowed to by up American assets at an ever increasing rate said one inside Washington spokesman.
The debt number, any debt number, regardless of the accounting method used to calculate it, is just a number. A scalar quantity. Scalars aren't much use to anyone, except headline writers trying to scare people into reading their article and then signing up for their political agenda.
The total debt, including intragovernmental, is $8.4 trillion; is that good, or is that bad? (Before you answer: The total number of raindrops that fell out of the sky was 8.4 trillion; was that good, or was that bad? You can't make that judgment until you have a little more information, can you? Also: I know of someone who has a $1.3 million mortgage; is that good or is that bad? We can't know until we have a little more info, can we?)
I am tired of seeing scalars used to scare people, and tired of the scare mongers not being called on it. There are only two possible reasons they're doing it: (1) they themselves are ignorant, or (2) they are using demagoguery to persuade. In either case, I have a big, big problem -- and I, for one, am not going to take it any more.
Let me give you a for instance. Let's say the present value of future liabilities is $80 trillion. Would that scare you? I presume it would; it scares most USA Today readers to death. But it wouldn't scare me until I had more information; if it turned out that the present value of future GDP were $130 trillion, that would yield a debt-to-GDP ratio same as today's. But they are not revealing important contextual information such as that. Why? Might they be less than eager to reveal their assumptions behind the numbers, such as some anemic 3.x% GDP growth rate? Might they be trying to sell (yet another) gloom/doom book? Might they be trying to peddle their pet tax program, such as a national sales tax? There must be some reason they want to focus the public's mind on the scalar quantity without placing it into perspective. (Their track record: They've predicted twenty out of the last two recessions.)
I am writing an article on this topic, and will publish it soon at my blog. Not sure what the title will be yet, but I'll post it soon -- now that USA Today has "confirmed" that doomsday is just around the corner. Sure hope I get it finished before doomsday craters the country and sends us back into the stone age.
The largest single holder of US government debt is...the US government?
Can somebody please explain?
Can I start printing promisary notes and selling them to myself? I think I'll loan myself a few million dollars, pay off my debts, retire at 39 and 1/2...
Steve I and many others here would be happy to discuss all the issues of our economy for the next several years, and you are welcome to join in.
I understand you may be at somewhat of a disadvantage here since we have been going at it here for some 18 months, and this thread moves with the changes in the economy.
I cannot speak for others here, but I can promise you that I have no personal agenda here. I am not selling anything. I have been personally very fortunate in my life, and by the grace of the good Lord I have been wealthy, privileged, and connected all of my adult life.
My sole purpose for posting information here is to give a wake up call to those who are constantly feed erroneous Gov. numbers, and statistics from the Guru economists, that publish those numbers on behalf of political parties or the billionaires on Wall Street.
You and I will never agree on most any topic here simply because we will not accept each other’s numbers, and that’s O.K. there are many of us that do not agree here.
If we were two guys setting down to discuss a merger of our two companies, this is how our conversation would go after you presented your financial package to me.
You would say, “ Here are our most up to date financials, we have loads of revenue, but we are 8 trillion in debt”
After looking at your package I would say, “well Steve I dropped by your auditors and picked up my own set, and they say you have 30 trillion in debt and the interest is accelerating by billions each month. In addition they say you never have been able to reduce any of this debt during the last several decades, you are borrowed up at most world banks, and you have also borrowed ALL the money out of your employee pension plans, and your employees medical plans.”
And you say, “don’t worry about that, we can just keep rolling this over for ever, and the auditors are crazy”
And I say, “yes Sir but nearly 40 percent of your work force is looking towards retirement and they are going to want their money”
And you say, “we can just cut these programs way back, and we can sell huge amounts of stock to pay down the debt.”
And I say, “ you have NEVER been able to reduce these costs in last 20 years, and if you print more stock, the dilution will make your stock worthless, and it will trade as a penny stock in the world markets.”
You continue to insist I accept your numbers, and I continue to tell you that I will not.
As far as your post on your pie chart for debt, again I think your numbers are off by many trillions of dollars. Once again I can understand your problem here is where you got these numbers, and perhaps the chart itself. I had a hard time reading all the small print even when I went to the expanded chart, and I have a really dumb question for you. This is a chart of who owns the National Debt, and yet the largest owner is listed as the U.S. government?
Please tell me how our government owes itself 3499 billion dollars? If this is a tiny part of the money they have borrowed from S.C. and Medicare then this number needs to be much much larger. Even the Bush administration admits there is nothing in these trust funds but I.O.U.’S.
The most important point of all was left out of your hypothetical negotiation: growth. If the economy (approx= the sum of all our incomes) is growing at least as fast as the debt grows, our ability to service the debt is growing at least as fast as the debt service obligations (for the last decade, net interest on the debt has been taking a smaller and smaller portion of tax receipts; currently ~9%; see this chart).
Can we keep the economy growing, or accelerate its growth? That's what has been happening for generations, and that's what I think will continue to happen. If we can, inflation and the dollar will remain healthy. For the last several decades, we have proof that 2+% inflation can be sustained with a debt-to-GDP ratio between 50%-70%. Let's say we can find a way to sustain it at ~60%. Our track record implies we could sustain a comfortably low level of inflation (2+%) as our debt grows to $80 trillion and our GDP grows to $130 trillion (both numbers ten times today's level).
But just think of the field day the scare mongers would have with the debt number of $80 trillion. "It would go to the moon and back a zillion times!" "Doomsday is just around the corner; really, I'm not kidding, this time it really, really will happen, trust me just this one more time..." More bestselling doomsday books would be written, more attention-grabbing headlines would be written in USA Today and The National Enquirer, more politicians like Jim Cooper would mesmerize audiences with big scalar numbers ... and the economy would keep on ticking, incomes would continue to grow, tax receipts would continue to grow, citizens would keep buying T-bonds (i.e., "national debt") to make their grandkids' future a little better, and entrepreneurs would keep innovating, creating new products, new jobs, and driving economic growth.
That's what I think will happen. There are others who are more optimistic than I am; inventor Ray Kurzweil thinks we are at the knee of an exponential growth curve right now. He wrote a book on it ("The Singularity is Near"), and reviewed his own book on C-SPAN several months ago. Anyone who wants a good dose of how bright the future can (will?) be should listen to Kurzweil's presentation of his book; it's the MP3 link at this web page.
Lastly: You asked how the government owes itself all that money. That amount represents the bonds contained in the social insurance trust funds. By the way, anyone who thinks those bonds are a joke ("merely IOUs"), including at least two senators who have decided to use that scare tactic to attract attention, should read this article, and think twice about how preferable it would be to have cash locked-up cash in that trust fund instead of bonds.
In any case, all the flap about money is missing the point. Wealth is not money, wealth is the stuff money buys: real goods and services. Money is required in any economy that has moved beyond the barter stage; futhermore, a growing amount of money is required in an economy that is growing(see this article about money). If our economy is producing real goods and services to its maximum potential at any given point, including 50 years from now, and our monetary and fiscal policy has been supplying that economy with just the right amount of money and T-bonds, everything will be running smoothly, our population will enjoy a much better standard of living than today -- and the doomsters' predictions of disaster, once again, will be forced to move another two decades into the future (just as it has been doing for at least the last forty years).
Sorry you think the government is conspiratorially faking us out with phony numbers; I have to disagree. I think most journalists and politicians are faking us out with highly misleading interpretations of those numbers -- and whether they are doing it through ignorance or subterfuge, the result is the same: a general population that is getting a highly distorted message overwhelmingly biased towards pessimism.
Steve, Here is the statement that is most interesting from the article you posted,
"Government bond: A financial asset backed by the full faith and credit of the United States of America. Earns interest. The difference: bonds earn interest; money does not. "
Exactly who told you that the loans from S.C., Medicare, Gov. retirement plans, etc. draw interest? Don’t you think the reason they borrow from us is that they don’t have to pay interest, or pay very little, not even enough to keep up with their reported inflation?
Can you please send us to a Gov. site that tells us how much interest we are making?
Are these truly notes, or bonds, or are they simple I.O.U.’s with no interest?
Are these notes, or bonds or I.O.U.’s indeed rolled over or are they just very long term with no payment schedule?
Can these just be extended at will?
Even the title of this section of your graph stinks, and I know it is not YOUR graph, but the idea that this section says money that the Gov. owes itself is absurd, this is not the Gov. money, this is our money, we placed in thrust with those fools.
And once again I ask you where is the other 30 trillion? By the governments own auditors admission the deficits have been running 2.9 trillion average since 1997.
One other thing I think perhaps you are missing here is that the American people cannot sustain any decent tax increase to pay this debt. Not because the federal tax rate is so high, but because we are already paying 50 to 60% of everything we earn to one tax authority or another. Here is the list,
Terry
TAXES Accounts Receivable Tax Building Permit Tax Capital Gains Tax CDL license Tax Cigarette Tax Corporate Income Tax Court Fines (indirect taxes) Dog License Tax Federal Income Tax Federal Unemployment Tax (FUTA) Fishing License Tax Food License Tax Fuel permit tax Gasoline Tax (42 cents per gallon) Hunting License Tax Inheritance Tax Interest expense (tax on the money) Inventory tax IRS Interest Charges (tax on top of tax) IRS Penalties (tax on top of tax) Liquor Tax Local Income Tax Luxury Taxes Marriage License Tax Medicare Tax Property Tax Real Estate Tax Septic Permit Tax Service Charge Taxes Social Security Tax Road Usage Taxes (Truckers) Sales Taxes Recreational Vehicle Tax Road Toll Booth Taxes School Tax State Income Tax State Unemployment Tax (SUTA) Telephone federal excise tax Telephone federal universal service fee tax Telephone federal, state and local surcharge taxes Telephone minimum usage surcharge tax Telephone recurring and non-recurring charges tax Telephone state and local tax Telephone usage charge tax Toll Bridge Taxes Toll Tunnel Taxes Traffic Fines (indirect taxation) Trailer Registration Tax Utility Taxes Vehicle License Registration Tax Vehicle Sales Tax Watercraft Registration Tax Well Permit Tax Workers Compensation Tax
Thank you for taking the time to provide a real counterpoint to most of the opinion expressed here. A conversation between people who all agree with one another is never terribly profitable.
The problem with doomsdayers is that they insist on saying "will" instead of "could." This or that will destory us, regarding anything, isn't true, but it is true that many things could. The Cuban Missile Crisis could have destroyed us, as I suppose the defeat at Cannae could have been the end of Rome.
The fact that none of the things that could have ruined the USA over the past century did, in fact, bring about some sort of armageddon, does not really tell us anything about the things which could bring disaster in the next hundred years.
For my part, I agree completely that numbers are numbers, they're all so large as to be unreal, and the question is sustainability of growth.
Of course, we can continue to service and roll over our debt indefinitely if and only if we continue to grow faster than it does, just like your analogy of a family that grows and buys more houses, never "paying off" it's debt.
That analogy involves a rapidly expanding population and an economy to accomodate it.
What happens if there is a period, even a relatively brief period, a decade say, in which growth is not possible for one reason or another? I can think of plenty we might face in the coming century.
The idea that we will never face another large economic disturbance is absurd, and what then?
My concern is not that doom is nigh, the system will implode all on it's own, but rather that the system--the whole, worldwide economic system--is getting fragile, and history has a tendency, sooner or later, to break fragile things.
I for one do not think we are headed for the end of our world here!
We will all survive as a country long into the future. The government will either default on the debt, or inflate its way out. Neither will kill us, but it will make a big difference in our lives.
My complaint is simply all this, why all this lying!
How can the American people plan for their futures when our own government lies to us at every turn.
Just give us the REAL numbers for our debt, for the CPI, the real cost of all these social programs that have been approved the last several decades. No one but poor old Bush has even pointed out we might have a problem here, and he cannot do anything about this.
Why lie to us, and keep two sets of books?
Why let the baby boomers retire and then tell them all their money is gone and the age limit is being raised, or the programs are being means tested.
Why lie about the CPI so that the government does not have to spend billions more on inflation adjusted S.C. checks, and government workers checks?
Debt rollover is going just fine. Here's who owns the debt, and who's been buying it (...keep a wary eye on those scary Brits!).
Japan and others have tossed in the towel in buying debt at previous rates. It was their one time massive purchase of our treasuries just a couple of years ago that helped liquify the world. Britain has picked up the slack as they are a close ally. We sink or swim together with the Brits.
Also, some Harvard economists think we are running a trade surplus instead of a deficit.
How many economists get govt grants by disagreeing with the party line??? With GDP cooked like the CPI, the call of a recession will be many quarters behind when it actually began. Some have stated we are already well into one, yet good old GDP says otherwise. Those same economists will roundly support current CPI tinkering. The only problem is that today's numbers fall a few % behind the older methods. Any idea which is more representative? Today's numbers with hedonics, substitutions, etc or the pre-Bush 1 assumptions? 2% inflation? Depends on how you measure it. We know the money stock has increased 4X or more since 1982 and prices on many items are 4X higher. Yet I'm sure a 2% inflation stat won't support this reality. Many of our own collectibles are up 10X, 20X, or even 30X or more in that period. Doesn't feel like 2% inflation. Home prices? Up several times as well since 1982. This is exactly why those CPI/GDP/job growth/unemployment scalers are so darn inaccurate...you have to look at the assumptions, not the #. The birth death model alone can swing the jobs # 100% in either direction. A net +900,000 jobs per year are already added into each year's forecast on the birth-death model even if no real job growth occurs. Do you think those get accurately removed if they didn't really occur?
Does anyone really believe the govt wants to accurately measure CPI and give out 100% of the social security, medicare, and pension benefits due to retirees ? If a computer gets 50% more memory/speed does EVERYONE or even MOST EVERYONE feel that you got 50% more for your money? So instead of the $1000 you paid for that computer, the BLS uses $500 as the "adjusted" price. Shouldn't you apply for a $500 rebate if that was the case? Same logic is applied to dryers and other assorted items.
It's no secret that between imputed rent of your home ownership and durable goods that either stay the same in price or go down (based on "improvements") 50% of the CPI has been locked up for 10-15 years. It's very hard to move an index where 50% is essentially fixed. And while easy home ownership was handed out for the past 5 years, this only served to drive down rents further while home ownership prices went through the roof.
The new quandry is that rents are finally starting to rise as home prices come down. It just may be time to go back to using home ownership again (as in pre-1983) rather than rents to keep that dang CPI down. It would really tick off some govt accountant if 40% of that index starts moving up again.
Some brief answers to your key questions, and a question or two for you...
"Exactly who told you that the loans from S.C., Medicare, Gov. retirement plans, etc. draw interest?" The federal government did. See Figure 1 on page 46 of the Financial Report of the US Government, and note the little arrows labeled "interest credited." link
"Can you please send us to a Gov. site that tells us how much interest we are making?" Sure; I'll even tell you where to find the relevant numbers in the relevant report:
To figure the interest earned by intragovernmental debt, subtract the second number from the first: Difference = interest on intragovernmental bonds; FYTD= $168.0B
Of course, if the government is lying, all of the above numbers are suspect. Do you think the Treasury and the Federal Reserve are lying to us? If so, where's your evidence that intragovernmental bonds earn zero interest? And if you have no evidence, do you now agree that trust fund assets are better held in the form of bonds backed by the US government instead of cash backed by the US government? (If you don't agree, why do you think cash is the better choice, given that both cash and bonds are backed by the full faith and credit of the United States government?)
"And once again I ask you where is the other 30 trillion?" It's inside the spreadsheet (presumably Microsoft Excel) of whomever ran the present value calculation (PV of future liabilities); it's also in a multitude of newspaper articles written by alarmists who apparently think single-entry accounting is a good idea, and also in speeches by Jim Cooper, John Tanner, and other Blue Dog Democrats who, trust me on this, are far more concerned about correct politics than correct economics. You seem to be worried about that number; would you feel better if that person's spreadsheet also had, somewhere on it, the present value of future GDP that was $50 trillion or so? Are you under the impression that somebody needs to come up with $30 trillion SOON, in order to reestablish "fiscal responsibility"??
You seem to think inflation or repudiation are the only two possibilities to "get out from under" our debt. Why do you think our current situation (neither hyperinflation nor repudiation is happening) not sustainable if the debt grows only as fast as the economy grows, generation after generation? Why do you and all the other doomsters think we'll someday have to come up with the money to eliminate everyone's Treasury bonds? I have yet to hear a cogent explanation; maybe you are the one who, at last, can provide one.
It is easy to lose sight of the big picture when you're looking at numbers and the minutia generated by them. They can be extremely misleading simply because they are so complex that no one can keep them all straight in their head. Even if the num- bers are totally accurate there would still be doubt that you'd have all the information needed to make meaningful predictions.
Fortunately I have little or no comprehension of most of these numbers so am unencum- bered to look at the present if not the future. Looking at the present certainly would entail some real eye-openers to anyone from the past. The idea that staggering debt can be beneficial is a difficult concept to grasp. The more stunning eye-openers though are the trends. This especially applies to the aging work force and the exportation of our pro- ductive base. Our grandchildren will not only be taking in each others' laundry to earn a living but will be required to support two sets of grandparents. They will do this with what amounts to a sixth grade education in nearly a quarter of the cases. Even those who are educated are often in some tiny specialty that only in modern times require any sort of de- gree. They will almost certainly have to do their work with out very much oil and the ener- gy infrastructure they'll need isn't even in the planning stage yet. Indeed, if the oil were to stop today it would take years to energy to even construct this infrastructure and in the meantime there would be mass starvation.
Certainly our economy is strong. We have great wealth and we have great assets that are not going to simply disappear no matter how things develop. Productivity continues to im- prove and more people are living well than ever before. Even the working poor can usually afford a good diet and basic health care. Hours are very long for most workers but this is largely through choice rather than a need to put food on the table. Our infrastructure that was in shambles only ten years ago is well on its way to being rebuilt and we aren't reading of bridge and dam collapses. Most importantly Americans are still as resourceful as ever and probably will find a way to muddle through these challenges.
My concern is that we may be running out of time to address the most fundamental problems in our institutions. Can this country survive as a free republic when so many are uneducated or illiterate? Can we survive when all the concepts of the past have been cast off and replaced with vacuous promises? Can we survive without the family?
"The idea that staggering debt can be beneficial is a difficult concept to grasp."
That "staggering debt" -- I presume -- is the government's debt to the public. That's what we get when the government runs fiscal deficits.
Thought experiment: Turn that around; assume that the government had been running surpluses all that time, instead of deficits. In that case, instead of "the government's debt to the public," we would have something quite different: "the public's debt to the government," because the government would have been forced to purchase private assets with all those surpluses (in order to avoid causing a deflationary economic collapse.)
Personally, I prefer having a "government's debt to the public." I like owning T-bonds, purchased with my personal after-tax surpluses which wouldn't have been there if my tax rates had been higher; T-bonds that I can bequeath to my kids and grandkids; T-bonds confirming that the wealthiest nation in history is using the money I chose to lend it, and has promised to pay me back with interest. I like knowing that I can neutralize my share of the government's interest burden (interest paid out of tax receipts to holders of the public debt) simply by purchasing enough T-bonds such that my interest income from T-bonds is equal to the portion of my taxes that goes to interest on the debt (~9% of tax receipts). I like knowing that, because of the massive market for US Treasury securities, the Fed will have little trouble creating a growing money supply to support a growing economy without inflating or deflating the currency. In short, I like a lot of things about the "government's debt to the public."
Which do you prefer: "government's debt to the public," or "public's debt to the government"?
Interesting points, especially about the problem of surpluses. It leads me to wonder, do you think that deficit spending is, in fact, a necessary element of our financial system?
Is it, in fact, a desirable situation to run some degree of deficit?
The assumption of nearly everyone is that a balanced budget is the ideal situation, with neither surplus nor shortfall. Would you take issue with that fundamental assumption?
Without deficit spending beyond our means we would not have been able to create the "miracle" of the late 1980's and 1990's. That is, selling our securities overseas in droves, buying cheap foreign goods in return, paying for this by printing excess money or doing it electronically. Basic theory is to export our inflation. We have gotten the best of both worlds for 2 decades. The downside of deficit spending is ultimately the sale of all our assets and our children's future assets to pay for it. So far it has worked to a tee. There has been no accounting. With the rest of the world coming up to speed and expecting similar increases in their life styles and quality of life, there are going to be shortages of "things."
On the surface this all looks relatively manageable. Yet don't forget that no nation in the history of the world has survived on by debasing their currency forever. We have yet to pay the piper for quadrupling our currency over the past 25 years. The negative effects of this has been kept under wraps by keeping the price of gold and other commodities down for so long. Now that commodities have been on a tear for 5 years and the dollar has been weakened, the game has been busted wide open. Eventually the price of gold and commodities held down since the early 1980's will seek their true price based on decades of currency debasement. That 4x moneystock increase will eventually lead to a 4X increase in the gold price ($400x4).
<< <i>Personally, I prefer having a "government's debt to the public.".................. >>
I am concerned about this comment in light of the following:
(1) Our railroad infrastructure is aging and not been upgraded significantly since the 1950's. (2) Our electric transmission infrastructure is aging and has not been upgraded significantly since the 1970's. (3) Our oil refinery infrastructure is aging and has not added any new refineries since 1976. (4) Nuclear power is at a standstill. (5) Wind power industry wants to grow but is being "tied up" by governmental "investigation." (6) Our vaunted interstate highway system has been upgraded but due to the American increasing love of the auto and the rail system failing to keep up with demand, is suffering from increasing congestion. (7) Indeed some of the bright spots has been improved infrastructure in communications and in shipping seen in some upgraded coastal shipyards.
Normally governments should go debt building up a county's infrastructure or defending itself in times of war Governments should NEVER increase their debt due to entitlements. This is the core of the problem. Promises made that cannot be kept. Those promises should NOT be kept.
Because of this, the USA us looking more and more like a decayed country which reminds me more and more of the decaying Roman Empire in the 3rd century AD, a century before it ultimately began to literally implode.
Example of a specific decaying infrastructure: New York City has not upgraded their water pipelines from their sources in well over 70 years. No one knows if it is on the verge of collapse or not. Water is pouring out of the pipelines at various locations and the City is trying to patch thing up. Barely.
Another example: The Alaska pipeline suddenly needs to be shut down for major replacement of the pipeline for at least 3 miles due to major corrosion in the lines. The line is only 30 plus years old.
Is the USA investing in its infrasture or merely investing in its own IOU's????????
Comments
<< <i>As far as a collective group of humans taking note of how certain actions are driving them all to ruin and taking corrective measures...it's possible. But the Romans didn't manage it, nor the Egyptians, nor anyone I can think of. Civilization rise...and they fall. None have endured the final test and avoided the catastrophe.
>>
And herein lies the greatest threat to all civilization, the status quo.
Civilizations appear in niches. They exploit the resources and develop economies to make
the most use of the various attributes and wealth available. They invent rules of law and pol-
icy to deal with regulating human greed and stupidity. They use procedure and learn what
things work and what don't. All institutions and organizations get in a rut and are incapable
of change even if the status quo no longer works or it becomes apparent it will change in the
future. Individuals fear change. Companies stay far away from change so new ones spring
up as markets change. But fundamental change is far more difficult.
Instead layers of new laws and regulation are adopted to address new issues. New procedure
is added to existing procedure rather than revamping the entire process. The civilization will
simply march in lock step to its demise.
The same will happen here someday and we have been making the same mistakes since the
beginning. The ability to ament The Constitution has granted us no special ability to change
nature or even to throw off no longer needed and outmoded policies.
God willing, it will be many years befor our bloated and moribound system can no longer func-
tion in the real world.
From that point, all change becomes the tearing apart of the order that was, replacing it with nothing. For us, this began with the French Revolution, and winds its way down to the social democracy today. False promises, all.
As man decays from within, government tries to impose from above what has been lost, but it cannot be. Self-regulation, self-discipline, all the old virtues, cannot be replaced by any government. Yet because it does not work, man decays more, and more government is pitched as the cure. It is a vicious, repeating, compounding cycle.
Maybe we are not headed for ruin and no need for stocking up on provisions. However, there are some basic economic days of reckoning that need to be accounted for and until they are we are on borrowed time.
I am not one to preach but read about the period right before the depression. Things were booming. Not saying we will have the same but spaghetti happens and it manifests itself from the events not on the radar. Just prior to 9/11 if someone outlined such a plot and the followup of events until today they would have been laughed at.
Bottomline, I think life styles in the US are going to have to take a major adjustment in a southerly direction. Days of $4k plasma TV, his/her $50k SUVs, etc. all on a sub $100k salary are going to be a memory. I hope I am wrong but I doubt it.
I do not know who which Wall Street firm, or financial media Guru group invented that phrase, “gloom and doom” but it has become the catchword for all of those that recommend caution in their financial dealings.
If you are not charging up your credit cards, well you must be a gloom and doomer, if you want to pay off your mortgage rather than buying some companies paper assets, well you must be a gloom and doomer, If you would rather buy coins, or gold and silver rather than owning all this paper the government prints by the truckload each day, well you must be a gloom and doomer, If you would prefer have your cash money close to home in a bank rather than buying into the latest pumped up option ridden internet deal, well you must be a gloom and doomer, if you want to see the interest rates go up, so you can make a few dollars more on your savings than inflation eats away, well you must be a gloom and doomer.
How in the hell did the conservative careful investor become the gloom and doomer?
How many posts have been on this thread the last two years that advised people seriously to go under ground with their guns?
I might point out to you doubting Thomas’s that read here, that over the last two years, if you had bought commodities, and not taken out an ARM to pay off your credit cards, and would have kept your cash money in the bank or I bonds, or some of the other many crazy ideas that have been put forward here by all the “gloom and doomers “ you would have been much better off by FAR than any advice you might have taken from that blue shoed salesman at your local stock brokerage office.
To add to my earlier post, and I think I can speak for all the “gloom and doomers” here, what we truly seek is just one simple principle, we want the truth. We want the truth the whole truth and nothing but the truth, from the governments we pay more than half of our hard earned money to. We want the truth from our employees that run the companies where our pension money goes, we want the truth about the real financial condition of our country, and what faces our children, we want truth about how much money our bankers are printing, and what that is doing to the value of our savings.
We want honest government oversight in our SEC officials that force companies to disclose their full liabilities of pension and medical costs promised to workers.
We want people to go to jail for defrauding us in whatever business form, be it out right thievery, back dating options, or cooking the books.
We want laws that prevent speculators from running the prices of all commodities up and down, and costing all American families more to live each week.
We want a real CPI that includes all the necessities of life in the correct proportions.
We want full and constant disclosure of where our social security, and Medicare money is going.
We want new GAP accounting rules that force our publicly owned corporations to fully disclose, and subtract, ALL current and future liabilities from our balance sheets.
Until such time as we receive our honesty in full measure we are going to help one another discover the truth by any means at our disposal, and one of our means is this thread.
Here is a little potential good news for a change. Lets see if it becomes law!
July 28 (Bloomberg) -- The House of Representatives passed legislation overhauling the U.S. private pension system and requiring more than 30,000 companies to fully fund their pension plans.
The legislation, passed by a vote of 279-131, is designed in part to protect the Pension Benefit Guaranty Corp., the quasi- governmental agency that insures U.S. defined benefit pensions, which reported a $22.8 billion deficit this year.
Companies underfunded their plans last year by $450 billion, according to the Labor Department. Many lawmakers say a multibillion dollar taxpayer bailout of the PBGC may be needed if nothing is done.
am not one to preach but read about the period right before the depression. Things were booming. Not saying we will have the same but spaghetti happens and it manifests itself from the events not on the radar
The events (boom) leading up to the great depression closely parallel what we have today. In the first few years following the creation of the FED in 1913 the money supply expanded by some 60%. Those guys knew what "free" money was all about. The easier credit continued right up to 1929. "No one saw it coming."
Maybe or maybe not. A few did as they got out in time. Joe Kennedy was one of those who took advantage of the circumstances. And the FED compounded the whole thing by keeping all the gold locked up in reserves until it was too late.
Had they lended at the time the severity would not have been there.
You can liken the creation of the FED in 1913 to the removal of the gold standard in 1971. Each event started a new era of easy money, excesses, etc. Our current one has lasted quite a bit longer than the first one as our economy is far more complex today with many more effective safety valves (massive central bank lending for one at the drop of a hat). But to say that the 1920's was a boom period based on "real wealth creation" is like saying the Nasdaq miracle during the 1990's was real too. The boom of the 1920's had its share of massive speculation, smoke and mirrors as well, the basic output of central bank policies.
roadrunner
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
Guess what: Drucker's last two sentences also apply to nations, too. But some people apparently think my country will need to stop everything and liquidate its assets against its liabilities—sometime in the next generation or two. I disagree strongly, and I have some very serious questions for anyone who actually believes it.
In any case, Drucker was being polite. Here’s how I’d say it:
“Accountants count what’s easy to count—not what counts.”
Further rebuttal to doomsdayers here.
Another USA Bankrupt Article
Actually the SP500 is up over 15% the last 24mos and TIPS [govt bonds] are down about 2-3%: SP500 vs. TIPS The TIPS and I bonds have proven to be less profitable than they should be as the gov't cheats on the inflation rates. Nice racket huh?
My advisor whom I used for nearly 25yrs avoided the tech debacle[ongoing], got me into foreign stocks [especially emerging markets] and had me buying the commodities [mostly oil] back in 2000-2. At the time his advice did seem weird but as long as we were making money who cares. Interestingly he has sold out all the above except for token amount and special situations. Now have a hodgepodge of diversified non tech holdings and sovereign bonds paying nearly 7%. A great advisor makes all the difference in the world!
Investments come and go, that will never change. Right now it's our past consumption [i.e. debt], current attitudes, sharing resources [higher prices] in a global world and a too politiczed [w/o leadership] gov't which endangers us more than anything else.
Claus,
Please allow me to take this guy apart for you!
First I think we need a name for this group of gentleman, how about Happy Harpies?
This gentleman says,
“A scary article was just published a few days ago, titled Is the United States Bankrupt? We see that title all the time, because it’s a sure-fire grabber that sells newspapers, magazines, and books, lickety-split. As I recall, the last time I saw that title was six or seven weeks ago in the grocery store checkout line... but I just can’t remember if it was gracing the front page of the Globe, the Weekly World News, or the National Enquirer.”
He does say where the article came from, so either he thinks our Fed is full of nuts trying to sell their articles, or we should pay no attention to what they tell us if we don’t like the news.
He goes on, and this is your first key to whether you should even read further.
“ Having spent much of my career in corporate finance,”
This is the statement I really love,
“Was it assumed that the debt would eventually have to be paid off? If so, when and why was it assumed that debt rollover would become impossible?”
I wonder how high this guy’s credit card is? Does he ever take into account who has buying all this debt? The Arabs, China etc.
I also noticed that this very bright guy made no mention of the fact that we are continuing to add a minimum of $1,000,000,000,000 plus (ONE TRILLION) dollars in debt to the pile now each and every year?
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
It's what may not show up on the balance sheet that affects the company's bottom line are things like "derivatives." Enron's abuse was classic. What looks good on paper may stink in reality.
Frankly, the entire derivatives mess is essentially impossible to accurately value day to day or even year to year. There is no one set way that is used to estimate value and it usually differs wildly from the same parties who are partners on the same contract.
Pick whatever you want and go with it. Being mostly unregulated, derivatives make the game far tougher. Basically what Goldsaint said, just tell us the truth, and leave out the games. Problem is, most of us can't handle the truth or don't want to really hear it.
roadrunner
<< <i>$1 trillion per year in debt. I saw one Congressman on CNN last week who showed some simple bar graphs that "proved" to him that overall debt was better today than in the past. He compared total debt to GDP and "proved" that the number was in line with times past and actually lower percentage-wise. While this appears to be a sound argument I have to wonder if the goosed GDP, and goosed GDP "deflator" that affects the goosed GDP, were factored out of his numbers? A percent error here or there makes a huge difference Congressman! Go back and compare today's numbers to previous periods using the same old time rules. Then we can talk.
First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.
It's what may not show up on the balance sheet that affects the company's bottom line are things like "derivatives." Enron's abuse was classic. What looks good on paper may stink in reality.
Frankly, the entire derivatives mess is essentially impossible to accurately value day to day or even year to year. There is no one set way that is used to estimate value and it usually differs wildly from the same parties who are partners on the same contract.
Pick whatever you want and go with it. Being mostly unregulated, derivatives make the game far tougher. Basically what Goldsaint said, just tell us the truth, and leave out the games. Problem is, most of us can't handle the truth or don't want to really hear it.
roadrunner >>
It's not the numbers themselves that concern be nearly so much as the underlying trends. Other
than the war on terror the entire post-soviet collapse era is a golden period to correct problems,
build surpluses and create the conditions best suited to sustain the country during the period when
boomers retire. Instead existing problems mostly worsened and virtually the entire period has been
filled with red ink despite a republican Congress during most of the interval. Education, perhaps, is
slightly improved but this is one of the greatest failings and will have the most impact in the long term.
This isn't to say I'm pessimistic, merely that the clock continues to tick.
No, but one can go back to previous pages in this long, old thread and see who did (or did not) know what they were talking about.
Liberty: Parent of Science & Industry
<< <i>So, anybody figure out how to predict the future yet?
No, but one can go back to previous pages in this long, old thread and see who did (or did not) know what they were talking about.
Kind of like you can go back and look at past lottery winners to see who did (or did not) know what numbers would come up?
"The silver is mine and the gold is mine,' declares the LORD GOD Almighty."
<< <i>Strong bullion prices, a successful takeover of Placer Dome Ltd., and the successful launch of three new mines pushed Barrick Gold Corp.'s second-quarter profit so high it eclipsed the company's record for full-year earnings. >>
<< <i>Barrick reported profit of US$459-million (US53 cents a share) on revenue of US$2-billion in the second quarter ended June 30, compared with profit of US$47-million (US9 cents) on revenue of US$1.09-billion in the same period a year ago. >>
<< <i>The average price Barrick received for its gold rose by 40% quarter-over-quarter, while costs have risen only 10%. As a result, the company's operating cash flow shot to US73 cents a share for the second quarter, up from US19 cents in the previous year. >>
<< <i>
<< <i>So, anybody figure out how to predict the future yet?
No, but one can go back to previous pages in this long, old thread and see who did (or did not) know what they were talking about.
Kind of like you can go back and look at past lottery winners to see who did (or did not) know what numbers would come up? >>
funny
hi, i'm tom.
i do not doctor coins like some who post in here.
I've heard of people like that. Folks that just take a chance and hope that they are right, surely some of them do get lucky from time to time. Much different group than those that pay attention, stay prepared, and have a plan.
USA Today
Interesting though, I didn't know these numbers were getting lightly sauteed as well...
<< <i>Instead existing problems mostly worsened and virtually the entire period has been
filled with red ink despite a republican Congress during most of the interval. >>
Hmmmm....
>>>My Collection
I am "this guy." Sounds like you have a question or two for me, or at least a misunderstanding or two about me. Send me a private email, please, because I have a few questions for you. My email address is freely available at my website.
Text
LINK
<< <i>
<< <i>Instead existing problems mostly worsened and virtually the entire period has been
filled with red ink despite a republican Congress during most of the interval. >>
Hmmmm.... >>
I didn't mean to sound partisan since a republocrat is a republocrat, but the republicans
are supposed to be the party to cut spending and reduce in the growth rate of the federal
government. It's a little frightening when the "perfect storm" for fixing excesses comes to-
gether and no progress is made. There's no excuse for the worsening mess in Washington
and the republicans probably bear a disproportionate share of the blame.
Steve, welcome to our 18-month discussion on our economy, and thank you for your offer to answer some of my questions.
I think it is fantastic that you are willing to come here and participate. We seldom get nation economic writers here to help answer questions.
First please allow me to make two apologies, first I am sorry for referring to you as “this guy” perhaps I am blind, but I did not see your name on the article posted. Second please don’t take offense at my posting comments on your article when you were not here to respond. I can assure you that you were not singled out; dozens if not hundreds of articles have been posted here with many varying comments.
If it is agreeable to you I have one preliminary question that might help to ascertain how you derive your conclusions to your various theories.
First, on your web page, you have on the right, a national debt clock as well as a GDP clock. They appear to be the same as figures published by the U.S. government.
Also you made the following statement on your web post, and its attachment.
“ but anyone familiar with this weblog should be very familiar with the Debt-to-GDP statistic by now. (It's widely accepted by economists as a measure of a nation's debt load, and it compresses a significant amount of economic performance information into one single statistic.)”
Can I assume from these that the numbers you use in your calculations are in fact U.S. government annual published numbers?
Cool of you to come on board. We have had some real substantive discussions here.
One comment about your quotation of Peter Drucker which I disagree with ( a minor point). !st year accounting students do NOT learn balance sheets as liquidation valuation. Instead balance sheet represents historical cost modified in selected areas to a depreciated cost based on historical assumed useful lives. Land not bought for resale, for instance is never depreciated and furthermore it is never restated upward to reflect increasing market values. So actually, balance sheets are quite often LOWER than liquidations values.
Just a minor point. I liked your article.
I am running a little short of time today, and after looking at many pages on your website, I can see that the answer to my first question to you will be yes, you do use the regular published numbers put out by the U.S. government. If that is incorrect please let me know, but if that is the case here is my responses.
First of all I do not see how any economists can publish any credible theory, or for that matter even a statistical data compilation if they do not start with the correct numbers. Perhaps it might be published, but of course it would be meaningless.
I believe that even Laurence Kotlikoff’s paper cannot be correct if he did not have the correct numbers to start with, and I believe he did not. I believe he is using the same numbers that most establishment economist use, the U.S. Federal governments publicly published numbers, and these numbers are incorrect.
The published numbers are incorrect not by just a few billion here, and a few billion there, they are incorrect by trillions of dollars each year.
Steve, this is just my humble personal opinion, but I believe that perhaps you should change your debt clock by adding many many trillions of dollars.
You might also consider getting copies of ALL the U.S. Gov. annual AUDITS, as those did below, and keep up with it year by year producing the ONLY real debt clock in the country.
After those changes are made you might rethink your theories on debt verses GDP, and who in the end would ever be able to pay for this ever-increasing debt?
In September of 2004 Walter J. Williams published this article, “U.S. Treasury Shows Actual 2003 Federal Deficit at $3.7 Trillion”
I won’t bore you with all the gory details but here is the main trust,
“The actual reported 2003 budget deficit was $374 billion, one-tenth the number cited above,
As detailed in this article, the actual annual shortfall in U.S. government operations for fiscal year 2003 (September 30) was $3.7 trillion. Put in perspective, that means if the U.S. Treasury had seized all wages and salaries in 2003 with a 100% income tax, there still would have been a deficit!”
Yesterday this article ran in USA Today again I just posted the crux of the article, but what I really love is the Bush administrations comment in the last paragraph. This of course is not just the current administration; this is the way they all have been for decades.
What's the real federal deficit?
Updated 8/4/2006 9:55 AM ET
By Dennis Cauchon, USA TODAY
The federal government keeps two sets of books.
The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005.
The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.
Congress has written its own accounting rules — which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel.
Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household.
A growing number of Congress members and accounting experts say it's time for Congress to start using the audited financial statement when it makes budget decisions. They say accurate accounting would force Congress to show more restraint before approving popular measures to boost spending or cut taxes.
"We're a bottom-line culture, and we've been hiding the bottom line from the American people," says Rep. Jim Cooper, D-Tenn., a former investment banker. "It's not fair to them, and it's delusional on our part."
The House of Representatives supported Cooper's proposal this year to ask the president to include the audited numbers in his budgets, but the Senate did not consider the measure.
Good accounting is crucial at a time when the government faces long-term challenges in paying benefits to tens of millions of Americans for Medicare, Social Security and government pensions, say advocates of stricter accounting rules in federal budgeting.
"Accounting matters," says Harvard University law professor Howell Jackson, who specializes in business law. "The deficit number affects how politicians act. We need a good number so politicians can have a target worth looking at."
The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.”
debt/GDP is probably continually understated as well.
Derivatives on balance sheets (if they even appear) are no doubt counted in the easiest and most favorable way by each party to the transaction.
roadrunner
I'd like to know your real name, your age, and your background in economics and business finance. That's why I asked you to send me a private email. I'd still be willing to take this private, with the understanding that either of us would be free to subsequently publish any portion of that private exchange. (For example, I think portions of it would probably turn out to be instructional to readers of my website.) Taking the exchange private, in my experience, removes the public grandstanding factor from the exchange.
For now, just a little food for thought. You seem to be taking your evidence from the mainstream media. I have been researching this topic for fifteen years, and have a few questions that are never addressed by the politicians or the MSM. Regarding the USA Today article, and the "St. Louis Fed" article it is based on, I have been corresponding with several economists and accountants, some of them involved in the writing of those articles. I plan to publish an article at my blog as soon as I get confirmation from a primary source on one important point. Suffice it to say that, so far, I'm getting confirmation on my objections.
In the meantime, I have a few questions for you. In an earlier post, you ridiculed my assertion that, in a continually growing economy, the debt would never have to be paid back. (You share that opinion with many, many other people, by the way.) My questions to you: What is your understanding of the term "debt rollover"? Why do you think a nation's or corporation's debt management options are identical to an individual credit card holder's? How did you arrive at your conclusion that debt rollover will someday become impossible?
There are several other important questions, but let's just start with that one, as you proceed to "take me apart." Public or private, your choice.
Steve
“There are several other important questions, but let's just start with that one, as you proceed to "take me apart." Public or private, your choice.”
Steve please forgive my poor choices of words in my post from several weeks ago. I have no animosity toward you what so ever. We do not even know one another.
Any emotions directed your way are simply due to the information your readers see on your website, and how can you be at fault when you, like so many others are constantly feed lies from our very own government.
I cannot contact you via private message. Since you are new here you might notice you do not have the private message center in the top left corner functional. If you look at my post just above you will see a small gold lock, yours is missing.
Very briefly,
I am 60
In the last forty years I held positions as CEO in three publicly held companies, and directorship in four.
I am currently semi retired, but still am a director in two companies one of which is a publicly held mortgage company. In addition, I at one time was very involved in politics and considered by many to be my parties conservative leader in my state for a couple of years.
Yes I do get lots of my information from the public media, and believe it or not I am not such a fool that I believe everything I read. That said in my little world honesty still counts, and I can personally tell you from my personal contacts in Washington that the Federal government is lying on many fronts concerning the financial condition of our country.
In the simplest terms, it is possible to continue to roll over any debt literally forever as long as there is always a lender for that debt, but like a corporation, if the management lives way beyond its means year after year, decade after decade, one cannot assume that there will be such a lender.
The simple fact is that to hide all of their borrowing the U.S. congress has for decades borrowed billions of dollars each year from every source that would lend. In addition they have borrowed all of the American peoples money from every trust fund they had responsibility to protect, and that the trillions. The current administration that makes the comment below knows that the creditor of whom money was held in trust is coming for their money. They also know that there is going to be hell to pay, when this happens.
“The Bush administration opposes including Social Security and Medicare in the audited deficit. Its reason: Congress can cancel or cut the retirement programs at any time, so they should not be considered a government liability for accounting purposes.”
Why publish any debt numbers what so ever? The current administration could also say, there is no reason to publish any of these debt numbers, we can default on this debt and therefore it does not count!
Deals were struck decades ago to transition over the wealth of the world. It's been happening before our very eyes. The massaged govt statistics are one tool to keep the masses unwary of the changes. Once they figure it out, it will be long past midnight.
roadrunner
RR
I am sure you are correct, and assets are already moving into foreign hands as well.
I think this was posted earlier in the year, but this is a good example.
I am not sure that Steve2 has seen this, but the rollover, is not going as well as planned it appears.
At least in the case of foreign debtor’s it appears that they are exchanging their debt for hard assets.
CNN March 6th 2006
How many large American assets are still owned by Americans?
Every four years the U.S. Treasury department is supposed to send a report
to Congress on just what American assets have been purchased by foreign
governments, or companies. These reports are to be filed by law under the
CIFUS rules. There have been no reports filed with the U.S. Congress since
1994. The stir over the DP World Ports transaction has encouraged many new
questions about just who is buying American assets, and in what quantity.
According to some estimates there have been 1500 major U.S. assets sold to
foreigners over the last twelve years, almost all of these have been approved
quietly by the U.S. Treasury department. It appears only one may have been
rejected, that being the Unocal deal last year. The Senate Banking committee
now wants to know just what is going on.
Foreign companies and governments awash with Trillions of U.S. dollars, and
dollar backed securities, have been allowed to by up American assets at an
ever increasing rate said one inside Washington spokesman.
The total debt, including intragovernmental, is $8.4 trillion; is that good, or is that bad? (Before you answer: The total number of raindrops that fell out of the sky was 8.4 trillion; was that good, or was that bad? You can't make that judgment until you have a little more information, can you? Also: I know of someone who has a $1.3 million mortgage; is that good or is that bad? We can't know until we have a little more info, can we?)
I am tired of seeing scalars used to scare people, and tired of the scare mongers not being called on it. There are only two possible reasons they're doing it: (1) they themselves are ignorant, or (2) they are using demagoguery to persuade. In either case, I have a big, big problem -- and I, for one, am not going to take it any more.
Let me give you a for instance. Let's say the present value of future liabilities is $80 trillion. Would that scare you? I presume it would; it scares most USA Today readers to death. But it wouldn't scare me until I had more information; if it turned out that the present value of future GDP were $130 trillion, that would yield a debt-to-GDP ratio same as today's. But they are not revealing important contextual information such as that. Why? Might they be less than eager to reveal their assumptions behind the numbers, such as some anemic 3.x% GDP growth rate? Might they be trying to sell (yet another) gloom/doom book? Might they be trying to peddle their pet tax program, such as a national sales tax? There must be some reason they want to focus the public's mind on the scalar quantity without placing it into perspective. (Their track record: They've predicted twenty out of the last two recessions.)
I am writing an article on this topic, and will publish it soon at my blog. Not sure what the title will be yet, but I'll post it soon -- now that USA Today has "confirmed" that doomsday is just around the corner. Sure hope I get it finished before doomsday craters the country and sends us back into the stone age.
Debt rollover is going just fine. Here's who owns the debt, and who's been buying it (...keep a wary eye on those scary Brits!).
http://www.optimist123.com/optimist/2006/05/pie_chart_of_wh.html
Also, some Harvard economists think we are running a trade surplus instead of a deficit.
http://www.cid.harvard.edu/cidpublications/darkmatter_051130.pdf
Good news on all fronts.
Trade Surplus pdfnullDebt Rollover
To create link just click on (http) directly above and paste address in window, follow prompts.
Go to (profile) under navigation window to turn on PM.
edited to add that I don't know why the links work but they both do so I ain't gonna fix 'em.
<< <i>Debt rollover is going just fine. Here's who owns the debt, and who's been buying it (...keep a wary eye on those scary Brits!).
http://www.optimist123.com/optimist/2006/05/pie_chart_of_wh.html
>>
The largest single holder of US government debt is...the US government?
Can somebody please explain?
Can I start printing promisary notes and selling them to myself? I think I'll loan myself a few million dollars, pay off my debts, retire at 39 and 1/2...
Steve I and many others here would be happy to discuss all the issues of our economy for the next several years, and you are welcome to join in.
I understand you may be at somewhat of a disadvantage here since we have been going at it here for some 18 months, and this thread moves with the changes in the economy.
I cannot speak for others here, but I can promise you that I have no personal agenda here.
I am not selling anything. I have been personally very fortunate in my life, and by the grace of the good Lord I have been wealthy, privileged, and connected all of my adult life.
My sole purpose for posting information here is to give a wake up call to those who are constantly feed erroneous Gov. numbers, and statistics from the Guru economists, that publish those numbers on behalf of political parties or the billionaires on Wall Street.
You and I will never agree on most any topic here simply because we will not accept each other’s numbers, and that’s O.K. there are many of us that do not agree here.
If we were two guys setting down to discuss a merger of our two companies, this is how our conversation would go after you presented your financial package to me.
You would say, “ Here are our most up to date financials, we have loads of revenue, but we are 8 trillion in debt”
After looking at your package I would say, “well Steve I dropped by your auditors and picked up my own set, and they say you have 30 trillion in debt and the interest is accelerating by billions each month. In addition they say you never have been able to reduce any of this debt during the last several decades, you are borrowed up at most world banks, and you have also borrowed ALL the money out of your employee pension plans, and your employees medical plans.”
And you say, “don’t worry about that, we can just keep rolling this over for ever, and the auditors are crazy”
And I say, “yes Sir but nearly 40 percent of your work force is looking towards retirement and they are going to want their money”
And you say, “we can just cut these programs way back, and we can sell huge amounts of stock to pay down the debt.”
And I say, “ you have NEVER been able to reduce these costs in last 20 years, and if you print more stock, the dilution will make your stock worthless, and it will trade as a penny stock in the world markets.”
You continue to insist I accept your numbers, and I continue to tell you that I will not.
As far as your post on your pie chart for debt, again I think your numbers are off by many trillions of dollars. Once again I can understand your problem here is where you got these numbers, and perhaps the chart itself. I had a hard time reading all the small print even when I went to the expanded chart, and I have a really dumb question for you. This is a chart of who owns the National Debt, and yet the largest owner is listed as the U.S. government?
Please tell me how our government owes itself 3499 billion dollars? If this is a tiny part of the money they have borrowed from S.C. and Medicare then this number needs to be much much larger. Even the Bush administration admits there is nothing in these trust funds but I.O.U.’S.
Can we keep the economy growing, or accelerate its growth? That's what has been happening for generations, and that's what I think will continue to happen. If we can, inflation and the dollar will remain healthy. For the last several decades, we have proof that 2+% inflation can be sustained with a debt-to-GDP ratio between 50%-70%. Let's say we can find a way to sustain it at ~60%. Our track record implies we could sustain a comfortably low level of inflation (2+%) as our debt grows to $80 trillion and our GDP grows to $130 trillion (both numbers ten times today's level).
But just think of the field day the scare mongers would have with the debt number of $80 trillion. "It would go to the moon and back a zillion times!" "Doomsday is just around the corner; really, I'm not kidding, this time it really, really will happen, trust me just this one more time..." More bestselling doomsday books would be written, more attention-grabbing headlines would be written in USA Today and The National Enquirer, more politicians like Jim Cooper would mesmerize audiences with big scalar numbers ... and the economy would keep on ticking, incomes would continue to grow, tax receipts would continue to grow, citizens would keep buying T-bonds (i.e., "national debt") to make their grandkids' future a little better, and entrepreneurs would keep innovating, creating new products, new jobs, and driving economic growth.
That's what I think will happen. There are others who are more optimistic than I am; inventor Ray Kurzweil thinks we are at the knee of an exponential growth curve right now. He wrote a book on it ("The Singularity is Near"), and reviewed his own book on C-SPAN several months ago. Anyone who wants a good dose of how bright the future can (will?) be should listen to Kurzweil's presentation of his book; it's the MP3 link at this web page.
Lastly: You asked how the government owes itself all that money. That amount represents the bonds contained in the social insurance trust funds. By the way, anyone who thinks those bonds are a joke ("merely IOUs"), including at least two senators who have decided to use that scare tactic to attract attention, should read
this article, and think twice about how preferable it would be to have cash locked-up cash in that trust fund instead of bonds.
In any case, all the flap about money is missing the point. Wealth is not money, wealth is the stuff money buys: real goods and services. Money is required in any economy that has moved beyond the barter stage; futhermore, a growing amount of money is required in an economy that is growing (see this article about money). If our economy is producing real goods and services to its maximum potential at any given point, including 50 years from now, and our monetary and fiscal policy has been supplying that economy with just the right amount of money and T-bonds, everything will be running smoothly, our population will enjoy a much better standard of living than today -- and the doomsters' predictions of disaster, once again, will be forced to move another two decades into the future (just as it has been doing for at least the last forty years).
Sorry you think the government is conspiratorially faking us out with phony numbers; I have to disagree. I think most journalists and politicians are faking us out with highly misleading interpretations of those numbers -- and whether they are doing it through ignorance or subterfuge, the result is the same: a general population that is getting a highly distorted message overwhelmingly biased towards pessimism.
Steve,
Here is the statement that is most interesting from the article you posted,
"Government bond:
A financial asset backed by the full faith and credit of the United States of America. Earns interest.
The difference: bonds earn interest; money does not. "
Exactly who told you that the loans from S.C., Medicare, Gov. retirement plans, etc. draw interest? Don’t you think the reason they borrow from us is that they don’t have to pay interest, or pay very little, not even enough to keep up with their reported inflation?
Can you please send us to a Gov. site that tells us how much interest we are making?
Are these truly notes, or bonds, or are they simple I.O.U.’s with no interest?
Are these notes, or bonds or I.O.U.’s indeed rolled over or are they just very long term with no payment schedule?
Can these just be extended at will?
Even the title of this section of your graph stinks, and I know it is not YOUR graph, but the idea that this section says money that the Gov. owes itself is absurd, this is not the Gov. money, this is our money, we placed in thrust with those fools.
And once again I ask you where is the other 30 trillion? By the governments own auditors admission the deficits have been running 2.9 trillion average since 1997.
One other thing I think perhaps you are missing here is that the American people cannot sustain any decent tax increase to pay this debt. Not because the federal tax rate is so high, but because we are already paying 50 to 60% of everything we earn to one tax authority or another. Here is the list,
Terry
TAXES
Accounts Receivable Tax
Building Permit Tax
Capital Gains Tax
CDL license Tax
Cigarette Tax
Corporate Income Tax
Court Fines (indirect taxes)
Dog License Tax
Federal Income Tax
Federal Unemployment Tax (FUTA)
Fishing License Tax
Food License Tax
Fuel permit tax
Gasoline Tax (42 cents per gallon)
Hunting License Tax
Inheritance Tax Interest expense (tax on the money)
Inventory tax IRS Interest Charges (tax on top of tax)
IRS Penalties (tax on top of tax)
Liquor Tax
Local Income Tax
Luxury Taxes
Marriage License Tax
Medicare Tax
Property Tax
Real Estate Tax
Septic Permit Tax
Service Charge Taxes
Social Security Tax
Road Usage Taxes (Truckers)
Sales Taxes
Recreational Vehicle Tax
Road Toll Booth Taxes
School Tax
State Income Tax
State Unemployment Tax (SUTA)
Telephone federal excise tax
Telephone federal universal service fee tax
Telephone federal, state and
local surcharge taxes
Telephone minimum usage surcharge tax
Telephone recurring and non-recurring charges tax
Telephone state and local tax
Telephone usage charge tax
Toll Bridge Taxes
Toll Tunnel Taxes
Traffic Fines (indirect taxation)
Trailer Registration Tax
Utility Taxes
Vehicle License Registration Tax
Vehicle Sales Tax
Watercraft Registration Tax
Well Permit Tax
Workers Compensation Tax
Thank you for taking the time to provide a real counterpoint to most of the opinion expressed here. A conversation between people who all agree with one another is never terribly profitable.
The problem with doomsdayers is that they insist on saying "will" instead of "could." This or that will destory us, regarding anything, isn't true, but it is true that many things could. The Cuban Missile Crisis could have destroyed us, as I suppose the defeat at Cannae could have been the end of Rome.
The fact that none of the things that could have ruined the USA over the past century did, in fact, bring about some sort of armageddon, does not really tell us anything about the things which could bring disaster in the next hundred years.
For my part, I agree completely that numbers are numbers, they're all so large as to be unreal, and the question is sustainability of growth.
Of course, we can continue to service and roll over our debt indefinitely if and only if we continue to grow faster than it does, just like your analogy of a family that grows and buys more houses, never "paying off" it's debt.
That analogy involves a rapidly expanding population and an economy to accomodate it.
What happens if there is a period, even a relatively brief period, a decade say, in which growth is not possible for one reason or another? I can think of plenty we might face in the coming century.
The idea that we will never face another large economic disturbance is absurd, and what then?
My concern is not that doom is nigh, the system will implode all on it's own, but rather that the system--the whole, worldwide economic system--is getting fragile, and history has a tendency, sooner or later, to break fragile things.
I for one do not think we are headed for the end of our world here!
We will all survive as a country long into the future. The government will either default on the debt, or inflate its way out. Neither will kill us, but it will make a big difference in our lives.
My complaint is simply all this, why all this lying!
How can the American people plan for their futures when our own government lies to us at every turn.
Just give us the REAL numbers for our debt, for the CPI, the real cost of all these social programs that have been approved the last several decades. No one but poor old Bush has even pointed out we might have a problem here, and he cannot do anything about this.
Why lie to us, and keep two sets of books?
Why let the baby boomers retire and then tell them all their money is gone and the age limit is being raised, or the programs are being means tested.
Why lie about the CPI so that the government does not have to spend billions more on inflation adjusted S.C. checks, and government workers checks?
Japan and others have tossed in the towel in buying debt at previous rates. It was their one time massive purchase of our treasuries just a couple of years ago that helped liquify the world.
Britain has picked up the slack as they are a close ally. We sink or swim together with the Brits.
Also, some Harvard economists think we are running a trade surplus instead of a deficit.
How many economists get govt grants by disagreeing with the party line??? With GDP cooked like the CPI, the call of a recession will be many quarters behind when it actually began. Some have stated we are already well into one, yet good old GDP says otherwise.
Those same economists will roundly support current CPI tinkering.
The only problem is that today's numbers fall a few % behind the older methods. Any idea which is more representative? Today's numbers with hedonics, substitutions, etc or the pre-Bush 1 assumptions? 2% inflation? Depends on how you measure it.
We know the money stock has increased 4X or more since 1982 and prices on many items are 4X higher. Yet I'm sure a 2% inflation stat won't support this reality. Many of our own collectibles are up
10X, 20X, or even 30X or more in that period. Doesn't feel like 2% inflation. Home prices? Up several times as well since 1982. This is exactly why those CPI/GDP/job growth/unemployment scalers are so darn inaccurate...you have to look at the assumptions, not the #.
The birth death model alone can swing the jobs # 100% in either direction. A net +900,000 jobs per year are already added into each year's forecast on the birth-death model even if no real job growth occurs. Do you think those get accurately removed if they didn't really occur?
Does anyone really believe the govt wants to accurately measure CPI and give out 100% of the social security, medicare, and pension benefits due to retirees ? If a computer gets 50% more memory/speed does EVERYONE or even MOST EVERYONE feel that you got 50% more for your money? So instead of the $1000 you paid for that computer, the BLS uses $500 as the "adjusted" price. Shouldn't you apply for a $500 rebate if that was the case?
Same logic is applied to dryers and other assorted items.
It's no secret that between imputed rent of your home ownership and durable goods that either stay the same in price or go down (based on "improvements") 50% of the CPI has been locked up for 10-15 years. It's very hard to move an index where 50% is essentially fixed. And while easy home ownership was handed out for the past 5 years, this only served to drive down rents further while home ownership prices went through the roof.
The new quandry is that rents are finally starting to rise as home prices come down. It just may be time to go back to using home ownership again (as in pre-1983) rather than rents to keep that dang CPI down. It would really tick off some govt accountant if 40% of that index starts moving up again.
roadrunner
Some brief answers to your key questions, and a question or two for you...
"Exactly who told you that the loans from S.C., Medicare, Gov. retirement plans, etc. draw interest?"
The federal government did. See Figure 1 on page 46 of the Financial Report of the US Government, and note the little arrows labeled "interest credited."
link
"Can you please send us to a Gov. site that tells us how much interest we are making?"
Sure; I'll even tell you where to find the relevant numbers in the relevant report:
Monthly Treasury Statement, June 2006 [link
page 5, Table 3, "interest on treasury debt securities (gross)"; FYTD=$337.5B
page 30, "net interest"; FYTD=$169.5B
To figure the interest earned by intragovernmental debt, subtract the second number from the first:
Difference = interest on intragovernmental bonds; FYTD= $168.0B
Of course, if the government is lying, all of the above numbers are suspect. Do you think the Treasury and the Federal Reserve are lying to us? If so, where's your evidence that intragovernmental bonds earn zero interest? And if you have no evidence, do you now agree that trust fund assets are better held in the form of bonds backed by the US government instead of cash backed by the US government? (If you don't agree, why do you think cash is the better choice, given that both cash and bonds are backed by the full faith and credit of the United States government?)
"And once again I ask you where is the other 30 trillion?"
It's inside the spreadsheet (presumably Microsoft Excel) of whomever ran the present value calculation (PV of future liabilities); it's also in a multitude of newspaper articles written by alarmists who apparently think single-entry accounting is a good idea, and also in speeches by Jim Cooper, John Tanner, and other Blue Dog Democrats who, trust me on this, are far more concerned about correct politics than correct economics. You seem to be worried about that number; would you feel better if that person's spreadsheet also had, somewhere on it, the present value of future GDP that was $50 trillion or so? Are you under the impression that somebody needs to come up with $30 trillion SOON, in order to reestablish "fiscal responsibility"??
You seem to think inflation or repudiation are the only two possibilities to "get out from under" our debt. Why do you think our current situation (neither hyperinflation nor repudiation is happening) not sustainable if the debt grows only as fast as the economy grows, generation after generation? Why do you and all the other doomsters think we'll someday have to come up with the money to eliminate everyone's Treasury bonds? I have yet to hear a cogent explanation; maybe you are the one who, at last, can provide one.
minutia generated by them. They can be extremely misleading simply because they
are so complex that no one can keep them all straight in their head. Even if the num-
bers are totally accurate there would still be doubt that you'd have all the information
needed to make meaningful predictions.
Fortunately I have little or no comprehension of most of these numbers so am unencum-
bered to look at the present if not the future.
entail some real eye-openers to anyone from the past. The idea that staggering debt can
be beneficial is a difficult concept to grasp. The more stunning eye-openers though are
the trends. This especially applies to the aging work force and the exportation of our pro-
ductive base. Our grandchildren will not only be taking in each others' laundry to earn a
living but will be required to support two sets of grandparents. They will do this with what
amounts to a sixth grade education in nearly a quarter of the cases. Even those who are
educated are often in some tiny specialty that only in modern times require any sort of de-
gree. They will almost certainly have to do their work with out very much oil and the ener-
gy infrastructure they'll need isn't even in the planning stage yet. Indeed, if the oil were
to stop today it would take years to energy to even construct this infrastructure and in the
meantime there would be mass starvation.
Certainly our economy is strong. We have great wealth and we have great assets that are
not going to simply disappear no matter how things develop. Productivity continues to im-
prove and more people are living well than ever before. Even the working poor can usually
afford a good diet and basic health care. Hours are very long for most workers but this is
largely through choice rather than a need to put food on the table. Our infrastructure that
was in shambles only ten years ago is well on its way to being rebuilt and we aren't reading
of bridge and dam collapses. Most importantly Americans are still as resourceful as ever and
probably will find a way to muddle through these challenges.
My concern is that we may be running out of time to address the most fundamental problems
in our institutions. Can this country survive as a free republic when so many are uneducated
or illiterate? Can we survive when all the concepts of the past have been cast off and replaced
with vacuous promises? Can we survive without the family?
Food for thought...
"The idea that staggering debt can be beneficial is a difficult concept to grasp."
That "staggering debt" -- I presume -- is the government's debt to the public. That's what we get when the government runs fiscal deficits.
Thought experiment: Turn that around; assume that the government had been running surpluses all that time, instead of deficits. In that case, instead of "the government's debt to the public," we would have something quite different: "the public's debt to the government," because the government would have been forced to purchase private assets with all those surpluses (in order to avoid causing a deflationary economic collapse.)
Personally, I prefer having a "government's debt to the public." I like owning T-bonds, purchased with my personal after-tax surpluses which wouldn't have been there if my tax rates had been higher; T-bonds that I can bequeath to my kids and grandkids; T-bonds confirming that the wealthiest nation in history is using the money I chose to lend it, and has promised to pay me back with interest. I like knowing that I can neutralize my share of the government's interest burden (interest paid out of tax receipts to holders of the public debt) simply by purchasing enough T-bonds such that my interest income from T-bonds is equal to the portion of my taxes that goes to interest on the debt (~9% of tax receipts). I like knowing that, because of the massive market for US Treasury securities, the Fed will have little trouble creating a growing money supply to support a growing economy without inflating or deflating the currency. In short, I like a lot of things about the "government's debt to the public."
Which do you prefer: "government's debt to the public," or "public's debt to the government"?
Just some food for thought.
Interesting points, especially about the problem of surpluses. It leads me to wonder, do you think that deficit spending is, in fact, a necessary element of our financial system?
Is it, in fact, a desirable situation to run some degree of deficit?
The assumption of nearly everyone is that a balanced budget is the ideal situation, with neither surplus nor shortfall. Would you take issue with that fundamental assumption?
That is, selling our securities overseas in droves, buying cheap foreign goods in return, paying for this by printing excess money or doing it electronically. Basic theory is to export our inflation. We have gotten the best of both worlds for 2 decades. The downside of deficit spending is ultimately the sale of all our assets and our children's future assets to pay for it. So far it has worked to a tee.
There has been no accounting. With the rest of the world coming up to speed and expecting similar increases in their life styles and quality of life, there are going to be shortages of "things."
On the surface this all looks relatively manageable. Yet don't forget that no nation in the history of the world has survived on by debasing their currency forever. We have yet to pay the piper for quadrupling our currency over the past 25 years. The negative effects of this has been kept under wraps by keeping the price of gold and other commodities down for so long. Now that commodities have been on a tear for 5 years and the dollar has been weakened, the game has been busted wide open. Eventually the price of gold and commodities held down since the early 1980's will seek their true price based on decades of currency debasement.
That 4x moneystock increase will eventually lead to a 4X increase in the gold price ($400x4).
roadrunner
<< <i>Personally, I prefer having a "government's debt to the public.".................. >>
I am concerned about this comment in light of the following:
(1) Our railroad infrastructure is aging and not been upgraded significantly since the 1950's.
(2) Our electric transmission infrastructure is aging and has not been upgraded significantly since the 1970's.
(3) Our oil refinery infrastructure is aging and has not added any new refineries since 1976.
(4) Nuclear power is at a standstill.
(5) Wind power industry wants to grow but is being "tied up" by governmental "investigation."
(6) Our vaunted interstate highway system has been upgraded but due to the American increasing love of the auto and the rail system failing to keep up with demand, is suffering from increasing congestion.
(7) Indeed some of the bright spots has been improved infrastructure in communications and in shipping seen in some upgraded coastal shipyards.
Normally governments should go debt building up a county's infrastructure or defending itself in times of war Governments should NEVER increase their debt due to entitlements. This is the core of the problem. Promises made that cannot be kept. Those promises should NOT be kept.
Because of this, the USA us looking more and more like a decayed country which reminds me more and more of the decaying Roman Empire in the 3rd century AD, a century before it ultimately began to literally implode.
Example of a specific decaying infrastructure: New York City has not upgraded their water pipelines from their sources in well over 70 years. No one knows if it is on the verge of collapse or not. Water is pouring out of the pipelines at various locations and the City is trying to patch thing up. Barely.
Another example: The Alaska pipeline suddenly needs to be shut down for major replacement of the pipeline for at least 3 miles due to major corrosion in the lines. The line is only 30 plus years old.
Is the USA investing in its infrasture or merely investing in its own IOU's????????