Richard W. Fisher of the Dallas Federal Reserve and Charles Hugh Smith on how much America has promised more than can be provided

The entire notion of entitlements based on age

requires an ever-expanding population of working contributors

and an ever-expanding economy.

If either condition isn't met, then the programs fail.

Fisher's message is clear:

our entitlement programs will fail because there is no way to raise $100 trillion

in additional taxes in a declining economy.

Charles Hugh Smith

"Please sit tight while I walk you through the math of Medicare.

...The infinite-horizon present discounted value of the unfunded liability for Medicare A
is $34.4 trillion.

The unfunded liability of Medicare B is an additional $34 trillion.

The shortfall for Medicare D adds another $17.2 trillion.

...If you wanted to cover the unfunded liability of all three programs today,
you would be stuck with an $85.6 trillion bill.

That is more than six times as large as the bill for Social Security.

It is more than six times the annual output of the entire U.S. economy.

I want to remind you
that I am only talking about the unfunded portions of Social Security and Medicare.

It is what the current payment scheme of Social Security payroll taxes,
Medicare payroll taxes, membership fees for Medicare B, copays, deductibles
and all other revenue currently channeled to our entitlement system
will not cover under current rules.

These existing revenue streams must remain in place in perpetuity
to handle the “funded” entitlement liabilities.

Reduce or eliminate this income and the unfunded liability grows.

Increase benefits and the liability grows as well.

To solve the entitlement deficit problem,
discretionary spending would have to be reduced by 97 percent
not only for our generation, but for our children and their children
and every generation of children to come.

And similarly on the taxation side,
income tax revenue would have to rise 68 percent
and remain that high forever.

...For the existing unfunded liabilities to be covered in the end,
someone must pay $99.2 trillion more or receive $99.2 trillion less
than they have been currently promised.

This is a cold, hard fact."

Richard W. Fisher
Dallas Federal Reserve

$100 trillion in unfunded liabilities is the number now,

but if spending continues rising at triple the rate of the real economy,

then that number will only grow.

If we're honest about our accounting,

then the U.S. economy hasn't grown at all since 2008; it's shrunk by $6 trillion,

a sum we have masked by borrowing and spending $6 trillion in Federal debt,

money that replaced the decline of private borrowing and spending.

...We need a national conversation about reality, not wishful thinking.

We need to grasp the nettle and talk about triage,

about conserving Social Security for those with no other sources of income,

and about devoting our scarce resources for palliative and preventive care.

The Status Quo is completely, utterly unsustainable,

but that needn't bring the nation to its knees--unless we actively insist that it does so.

Charles Hugh Smith

John Mauldin on Social Security and Ponzi: Have America's Parents stolen thier children's inheritance?

"As long as each succeeding generation is willing to pay and is large enough,
SS can go on.

But now we have trillions in unfunded liabilities.

...anyone with a neuron firing knows there is no lock box and the Social Security funds are an entry into a government accounting book that don't really exist except as an IOU.

Politicians of all stripes have used the Social Security money to pay for other government expenses.

Those funds were even counted to offset the deficit, although now that Social Security is no longer in a surplus, ...that has gone away.

...The classic Ponzi is where you get money from one group and then find another group to pay the "returns" to the first, and so on, until you run out of people and the game is up.

[Charles] Ponzi...took money from one group, telling them they would get it back later, and then spent the money with another group, telling them the same thing.

The difference between a Ponzi and Social Security is that SS is legal and is done in full view of the public with everyone knowing the deal.

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan:

 

what you get out depends on what you put in.

 

So it does not look like a redistributionist scheme.

 

In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in.

 

Well, the Ponzi game will soon be over, thanks to changing demographics,so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in).

Paul Krugman, 1996

...President Franklin Delano Roosevelt...created the Social Security Act in 1935.

He put the retirement age at 65...four years above the average life expectancy.

...In 2003 life expectancy was up to 77

...Today it is 79 and change.

...Under today's laws one could retire at 62 or 65 or 67 and, if you just lived an average lifespan, get far more in benefits than you paid in.

...If Social Security had been set up to track life expectancy in 1935, when it was formed, then retirement would be set at 83 or 84 today!

Not exactly the golden-years concept, is it?

Mauldin

A profound truth on actual tax rates, by Michael Kinsley

"It’s really impossible to defend a system
where people at the bottom pay 30 percent or 35 percent
(including Social Security and Medicare taxes)
while people at the top who’ve arranged their affairs correctly
-- not all that hard -- pay 15 percent, as Romney did last year."

Michael Kinsley

Dear Cone Health: Free drug price comparison app debuts

"A new and free app
...lets you compare local prescription and generic drug prices.

Does Cone Health compare prices?

Healthcare Ethics: "The anatomy of a ripoff": If Ed Cone is on the board of Cone Health, and Jim Melvin thinks the merger is a great idea, how do they feel about this?

"...my teenage son was rushed by ambulance
...to Good Samaritan Hospital in Suffern after choking on a piece of turkey.

The care he received was appropriate; the bill was anything but.

The charges, in fact, were mind-boggling.

A statement the hospital sent to my insurance company
...showed that Good Samaritan billed $22,214.92
for a four-hour emergency room visit that included a physical exam,
sedation, endoscopy and extraction of the stuck food.

...it’s easy to think that he was seen less as a patient
and more as an ambulatory cash machine...

We must tear down the entire medical system in this nation

and imprison virtually all of the financial folks involved in it

-- especially Hospital-affiliated entities.

Karl

Even more astonishing, Aetna agreed to pay only $2,885.67 for the services
— just 13% of the bill — and the hospital settled for that amount.

...my son had a second choking episode two weeks after the first,
and the charges for his treatment at Somerset Hospital in Pennsylvania
were included on the same ...statement.

So I was able to compare bills for similar procedures at two emergency rooms.

What I learned was that the numbers printed on hospital bills
often bear no relation to reality.

That hospitals grossly inflate their charges,
expecting insurance companies to radically cut the bills
while hoping to wring bigger fees out of the uninsured.

That the bill inflation can include double-charging for procedures.

This sort of game-playing, where the intent is to catch "uninsured" people

and "gotcha" them into bankruptcy,

would be felonious in virtually any other line of business.

Karl

"Obama, Democrats, Republicans AND Bernanke All in a Bind – What they will do and when" Bruce Krasting: Would this be a hidden tax hike by both Dems and Pubs?

"We have two distinct groups in D.C. that are stuck between a very big rock and a hard place.

The first is the Federal Reserve.

The second is the Democrats and Republicans and the battle being waged over the debt limit.

...The Fed is in a bind.

The economy is clearly slowing down again.

Unemployment will soon follow.

According to the Fed’s Dual Mandate they should be doing something about that.

...They can’t do more Large Scale Asset Purchases (“LSAP”).

What has become referred to as “QE”, has not worked.

It was also very unpopular (both in and out of the country).

...Now consider where the politicians are on the inflation story.

Republicans have drawn a line in the sand on the debt limit with their position
of “No New Taxes”.

If we cannot raise taxation and we are spending more than we make,

and we cannot borrow more,

where will the money come from to pay for Social Security, Medicare

and Medicaid?

The Democrats have said pretty much the opposite with, “No spending cuts”.

...to go to August 2 without a resolution is just a dumb move.

...the next presidential election is riding on the outcome.

...The “side” that gets the blame will lose the election. And both sides understand this.

So where’s the compromise?

...The government has got to get out of its inflation indexed obligations.

If everything gets more expensive and fixed payments stay the same,

who takes the hit, and who benefits from others having less to spend?

You don’t have to raise tax brackets to raise revenues or cut expenses.

You can mess with inflation adjustments to achieve these ends.

Lying by omission

One lies by omission by omitting an important fact,

deliberately leaving another person with a misconception.

Lying by omission includes failures to correct pre-existing misconceptions.

…Propaganda is an example of lying by omission.

Wikipedia

Both sides can appear to win if this is accomplished.

Consider the words last week of Brian Graff of ASPPA (Lobby for pensions and actuaries)
(The conference was sponsored by the IRS!!)

"Eliminating indexing is one of the proposals receiving serious consideration
as Congress enters “uncharted territory” with legislation to raise the debt ceiling.

If Congress were to stop indexing for a period of time, which would affect tax brackets,
individual retirement account contributions, and contribution limits under tax code Section 415,
“you could raise a lot of money, and those are the kinds of things they are talking about.”

On the expense side of the equation a great deal of fat can be cut
by eliminating/cutting COLA increases in a variety of programs.

The most important of which would be Social Security.

Depending on how the cuts in COLA are defined and how they are applied
a huge amount of money would be saved over an extended period.

If all social obligations had their COLA increases cut in half
it would (on paper) put the US on a much more solid long-term footing.

If some financial estimates and hypothetical illustrations

assume perpetual levels of varying data,

can governmental inflation valuation measures be manipulated

to increase taxes without most understanding what is occuring?

It is a very appealing “kick the can down the road” approach.

No cuts in programs (just smaller increases) and no new taxes
(but higher revenue as the inflation adjustments for AMT and other tax issues kick in).

Why not do the same with federal state and corporate pension funds?

...this is the way it could play out:

We DO go to the 11th hour on the debt limit. But a compromised is reached.

Central to the deal is a broad restructuring
of the way inflation impacts both revenue and expenses at the federal level.

Both sides claim victory."

Bruce Krasting

The Ministry of Peace concerns itself with war,

the Ministry of Truth with lies, the Ministry of Love with torture,

and the Ministry of Plenty with starvation.

These contradictions are not accidental, nor do they result from ordinary hypocrisy.

They are deliberate exercises in doublethink.

George Orwell

Do the few who control dissemination of most financial and political information,
enjoy relatively disproportionate levels of influence than the many who don’t?

“You shall not bear false witness against your neighbor.”

Exodus 20:13

All warfare is based on deception.

…when able to attack we must seem unable,
when using our forces we must seem inactive,
when we are near, we must make the enemy believe we are far…,
when far away, we must make him believe we are near.

Sun Tzu

If there are about 75 million kids in the United States of America, will congress and the president charge them $12,000 a piece to bail out the financial mismanagement of their parents?

$900,000,000,000 / 75,000,000 Kids = $12,000 per American Child

What should happen to economies
in which elders consume more than their children’s inheritance?

Marketwatch: No mention of $900 billion two year cost

Obama announces deal on tax cuts, benefits

James K. Galbraith Statement to the Commission on Deficit Reduction

"Your proceedings are clouded by illegitimacy.

First, most of your meetings are secret, apart from two open sessions before this one, which were plainly for show. There is no justification for secret meetings on deficit reduction. No secrets of any kind are involved. Nothing you say will affect financial markets.

...Secrecy breeds suspicion: first, that your discussions are at a level of discourse so low that you feel it would be embarrassing to disclose them. Second, that some members of the commission are proceeding from fixed, predetermined agendas. Third, that the purpose of the secrecy is to defer public discussion of cuts in Social Security and Medicare until after the 2010 elections.

...most members of the Commission are political leaders, not economists. ...it is impossible to have a fair discussion of any important question when the professional participants in that discussion have been picked, in advance, to represent a single point of view.

...The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions. ...Your having done so is a disgrace.

...you also should not have accepted help from the Economic Policy Institute...

Let me now turn to the economic questions.

...Future Deficit Projections Are Generally Based on Forecasts Which Begin by Assuming Full Recovery, But This Assumption Is Highly Unrealistic.

...To understand how the discussion of future deficits is being framed, it is necessary to grasp the work of the principal forecasting authority, the Congressional Budget Office. CBO's projections...wipe out the current deficits, over a very short time horizon, by assuming a full economic recovery.

...CBO claims to expect a relatively rapid return, over five years, to high levels of employment, and the baseline incorporates a correspondingly high rate of real growth in the early recovery from the great crisis.

...under present financial conditions this scenario of a rapid return to high employment is highly unrealistic.

...de-leveraging in the private sector is sure to remain the rule for a long time, as mortgages and other debts default or are paid down, and as many households remain effectively insolvent due to their mortgage debt.

...Having Cured the Deficits with an Unrealistic Forecast, CBO Recreates Them with Another, Very Different, But Equally Unrealistic Forecast.

...In the CBO forecasts, big future deficits arise from a combination of (a) rapidly rising health care costs and (b) rising short-term interest rates, in the context of (c) a rapid return to high employment and (d) continued low overall inflation.

...Even if CBO were right about recovery, which it is not, this projection is internally inconsistent and wholly implausible.

...the economic forecasts on which you are being asked to develop a credible plan for reducing deficits over the medium term are a mess. The unemployment and growth forecasts are implausibly optimistic, while the inflation and interest rates projections are implausibly pessimistic and mutually inconsistent.

Good policy cannot be based on bad forecasts.

...The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely a fact. The only way to grow out of our deficit is to cure the financial crisis.

To cure the financial crisis would require two comprehensive measures. The first is debt restructuring for the entire household sector, to restore private borrowing power. The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place. To repeat: this is the only way to generate deficit-reducing, privately-funded growth and employment.

...the practices of banks and investment banks with which they were closely associated worked to destroy the financial system..., But I would wager that the Commission has spent no time, so far, on a discussion of the relationship between deficit reduction and financial reform.

...without private credit, deficit reduction plans through fiscal austerity, now or in the future, will fail. They cannot succeed. If at the time the cuts take effect the economy is still relying on public expenditure to fund economic activity, then reducing expenditure (or increasing taxes) will simply reduce GDP and the deficits will not go away.

...Only when the private sector steps up, will the debt-to-GDP ratio begin to decline.

...Most people assume that "bipartisan commissions" are designed to fail: they are given thorny (or even impossible) issues and told to make recommendations which Congress is free to ignore or reject.

...the goal is to defer recognition of the difficulties for as long as possible.

...Recommendations based on CBO's unrealistic budget and economic outlooks are destined to collapse in failure.

...Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all."

James K. Galbraith
Lloyd M. Bentsen, jr. Chair in Government/Business Relations,
Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin,
and Vice President, Americans for Democratic Action, June 30, 2010
Via The Economic Populist

"Fury Over Public Pensions Sparks Disclosure Lawsuits"

Fury Over Public Pensions Sparks Disclosure Lawsuits

Several state and local retirement funds have balked at disclosing the pensions of individual government workers, triggering lawsuits that claim taxpayers have the right to such information.

The showdown comes amid growing scrutiny of public-sector pensions as voters, many struggling amid the recession, increasingly question how tax dollars are spent in states and cities facing budget shortfalls and service cutbacks.

…Some advocates of disclosure say the funds are hiding behind legal arguments to avoid scrutiny, especially in the wake of the recent Bell, Calif., controversy that revealed the city's administrator was earning close to $800,000 a year. Based on that salary, it has been estimated that he stands to collect at least a $600,000 annual pension from the California Public Employees' Retirement System, or Calpers…

California State Controller John Chiang recently announced he is requiring all California cities and counties to report compensation for current public employees, which he plans to post on his website in November.

Jeannette Neumann
Wall Street Journal

Ambrose Evans-Pritchard on Spanish, British, American and almost everyone else's Social Security programs

"Spain uses social security fund to prop up the bond market

Spain is putting all its eggs into one basket...

The state pension fund...is buying Spanish sovereign debt at a vertiginous pace.

...the share of [the state pension fund's] total portfolio invested in Spanish government bonds rose from below 50pc in 2007 to 76pc in 2009.

The Social Security minister Octavio Granado said it will rise to 90pc by the end of this year.

It is clear from an analysis of the data that [the state pension fund] is not just investing fresh revenues in Spanish bonds, but also rotating out of Dutch, French, and German bonds into Spanish debt. The Spanish government is also funnelling 90pc of its sickness fund into state bonds.

Evidently, Spanish savers are underpinning Madrid’s Treasury auctions, whether they like or not. It is they who are mopping up the debt along with the European Central Bank as foreign creditors stay away. ...foreign demand for Spanish debt has “dried up” again after a brief recovery in July.

...Spain is not alone in tapping its pension fund. Half the world is doing it.

...Britain also plays the game. It uses pension rules to force its savers to buy Gilts. The US social security fund buys Treasuries. We all do it.

If there’s trillions of dollars difference
between publicly outstanding debt investors can buy and sell,
and non-marketable intragovernmental debt,
who is it owed to,
who has to pay how much and when,
how could those who know or should and don’t
let the country borrow trillions from itself,
and why are most Americans unaware?

We are building up a nasty inter-generational clash by plundering the savings of current workers to fund a bloated state and an aging bulge of pensioners who – through no fault on their own: many were even forced to retire before they wanted to – have become ruinously expensive for a shrivelled tax base.

...Let us call it the last roll of the dice."

Ambrose Evans-Pritchard 
Telegraph

On Deflation or Inflation: Bo Peng via Tyler and Questions

"Moderate inflation is good.

If a nation prints more money,
like cutting a 16 inch pizza into 12 slices instead of 8,
is each slice worth less?

This has been held as self-evident truth in modern monetary policy.

What if the pizza shrinks while the number of slices rise?

But this will quickly become antisocial as the entire west goes through a structural change in demographics caused by babyboomer retirement. BoJ seems to have realized this early and well; they have managed their social transition with remarkably success, despite much sneering from western economists (I argued here  that the Japanese lost decades is in fact a great achievement that US will only wish to match in 10 years).

If Bernard Madoff
distributed money received from new investors to older investors
until there wasn’t enough money to continue,
does Social Security operate under the same structure
with mandatory participation?

ECB seems to have realized this judging from their proclaimed resolve for austerity as opposed to unlimited simulus.

 

Create a higher likelihood of a better present
by securing need and achieving want,
in the shortest time with the least risk, for as long as possible,
by thinking of what and when relative to what was,
and what may happen after what could happen next.

The big question is: when will Fed and US government realize this?

 

Our Social Security system
is the very definition of a Ponzi, or pyramid scheme.

Congressman Ron Paul
Constitutionalist Libertarian

The reason for this fundamental shift is simple: soon-to-be retirees need to save but inflationary policy sacrifices savers for the sake of stimulating economic growth.

 

What does a 70 year old on a fixed income do,
when faced with a 0.05% return, intead of a 4% return?

In normal demographics..., most people get to participate in the growing economy by staying employed or employing; even though everybody's savings get eroded by moderate inflation, there's a good chance that most will be more than compensated by increasing earnings. Retirees are net payers for inflation because they can't replenish with inceasing earnings, as is always the case...

 

Should costs exceed incoming revenues sooner,
if millions of Boomers involuntarily retire
and apply for early Social Security benefits during an economic decline,
as average income falls and debt and medical costs to income ratios spike?

Starting from right now, however, as babyboomers go into retirement or start deligently (perhaps belatedly) saving for retirement, inflationary policy will cause much more pain than ever seen before.

 

Are Baby Boomers going to get more or less than they think,
if the supply of what they want to sell exceeds demand
as they exchange assets for needed goods and services
in the same era?

 

Even under "moderate inflation" scenario, it's still a significant erosion of buying power and living standard over 10, 20, 30 years...

 

If workers earn, pay taxes, spend, save and invest,
while retirees divest, downsize, budget
and draw income and healthcare benefits,
what’s going to happen when more retirees want
what fewer workers may not be able to deliver?

 ...Japanese style stagnation is the best possible outcome during this transition...

 

Should interest rates and financial markets rise or fall,
if the rest of the world becomes less able or willing
to finance American lifestyles?

Do we cope with it or fight a losing battle in which everyone loses?"

 Bo Peng
Via Tyler

 

If you found the present negatively affecting the future,
should you try to fix it?

 

Was it justifiable for the baby boom and their elders, to promise themselves tens of trillions of unfunded benefits, like Social Security, Medicare and Medicaid, for future generations to pay for?

Why would some of one generation

want to covertly confiscate another’s wealth?

 

It is grossly irresponsible for the baby boom generation

 to expect Generations X and Y

 to be saddled with our national debt,

 our trade debt, and our infrastructure debt,

and the retirement debt created by baby boomers

enjoying long retirements supported by future tax increases

on their children.

 

Rob Atkinson

The Atlantic

If workers earn, pay taxes, spend, save and invest,

while retirees divest, downsize, budget

and draw income and healthcare benefits, 

what’s going to happen when more retirees want

what fewer workers may not be able to deliver?

 

Are Baby Boomers going to get more or less than they think

if the supply of what they want to sell exceeds demand,

as they exchange assets for needed goods and services

at relatively the same time?

 

Loss is nothing else but change,

 and change is Nature's delight.

 

Marcus Aurelius Antoninus Augustus

Roman Emperor

If Social Security taxes were increased in 1983 to ease the burden of a smaller generation tasked with providing benefits to a larger number of longer living elders, why would elected leaders borrow and spend the surplus?

The Treasury Department has for decades

borrowed money from the Social Security trust fund

 to finance government operations.

 

 If it is no longer able to do so

 it could be forced to borrow an additional $700 billion

 over the next decade

 from China, Japan and other investors

 

"Over the past 25 years,

 the government has gotten used to the fact

 that Social Security is providing free money

to make the rest of the deficit look smaller." said Andrew Biggs

a resident scholar at the American Enterprise Institute

 

 "Now they've essentially got to pay their own way

 at least a little more fully..."

 

"Instead of Social Security subsidizing the rest of the budget,

the rest of the budget will have to subsidize Social Security."

 

Recession Puts a Major Strain On Social Security Trust Fund

As Payroll Tax Revenue Falls, So Does Surplus

Lori Montgomery

Washington Post

 

If Bernard Madoff

distributed money received from new investors to older investors,

until there wasn’t enough money to continue,

 does Social Security operate under the same structure

with mandatory participation?

 

If a private financial institution

 were as reckless with its fiduciary responsibility

 as Congress has been with Social Security and Medicare,

 there would be howls of indignation, demands for regulation

 and calls for the resignation and prosecution of those responsible.

 

Arnold Kling

 

Was it justifiable for the baby boom and their elders

to promise themselves tens of trillions of unfunded benefits

like Social Security, Medicare and Medicaid,

for future generations to pay for?

Bruce Krasting: Social Security lost track of $25 billion?

We Lost Track of $25 Billion?

I have been keeping an eye on the monthly numbers for the Social Security Trust Fund...

...There was no logical explanation for the continued drop in YoY payroll tax receipts.

Two important sources have “explained” this drop. Both the SSTF [Social Security Trust Fund] and the CBO [Congressional Budget Office]have confirmed that somehow there was a miscount over at Treasury for $25-29 billion.

 

Receipts from social insurance taxes
are also expected to decline this year
by $29 billion (3.2 percent) from last year,
mostly because of an adjustment by the Treasury
to correct for the allocation of receipts in earlier years.

The explanation from the CBO

 
    The estimated decline in trust fund income from 2009 to 2010
is due to the economic recession
and to an expected $25 billion downward adjustment to 2010 income
that corrects for excess payroll tax revenue
credited to the Trust Funds in earlier years.

The explanation from the SSTF

 ...This is not supposed to happen. In the monster numbers the government tosses around this is not a big deal. But $25b is still a lot of dough.

...There is not an adequate explanation of what has happened. What the hell does “earlier years” mean? (Note the common language by both CBO and SSTF)

...this money was invested in Special Issue Treasury securities. It earned interest on those securities. So Treasury created the $25b and gave it to the TF in cash, then the TF invested it back with Treasury. But there was no money. It was a double count. One would have thought that Treasury actually balances and confirms its cash accounts from time to time. This gets back to the question how long this error has been going on.

-In my opinion the SSTF has misrepresented its financial condition to the public and to Congress for more than eleven months. Faced with an embarrassing $25billion restatement what do they do? They bury the loss. They have artificially reduced reported monthly payroll tax receipts by approximately $2b per month for all of 2010.

That is not how a loss of this magnitude should be handled. A public announcement and a one-time loss would have been the appropriate way to account for it.

...If a public company played fast and loose with top line earnings to obfuscate a bottom line loss there would be hell to pay. The market would take the stock out in the woods and shoot it. The SEC would fine them 10% of what they hid. The press would have a field day and anyone near the cover up would be forced to resign. But this is D.C.

Bruce Krasting

On Unemployment: Why would some compare dissimilar calculations of economic statistics?

If you tell a lie big enough and keep repeating it,
people will eventually come to believe it.

The lie can be maintained only for such time
as the State can shield the people
from the political, economic and/or military consequences.

Joseph Goebbels

Statistics mask real economic pain

The jobless rate improved this week. It’s now 9.7 percent.

So it sounds as if Henry Paulson…can join Timothy Geithner and Larry Summers in self-congratulation over their roles in preventing a second Great Depression.

They can all cite today’s jobless rate and contrast it favorably to 1933, when it was about 25 percent.

…But the fact is that private-sector employment actually looks worse than during the Great Depression. If you compare the numbers with 1933, more than a third of U.S. workers are jobless today.

…In 1933, 25% of the working population meant 12.8 million people were out of work in a workforce of about 51 million. That included senior citizens, because only about 10% of older people had pensions in those years before Social Security.

Now, the federal government says we have an estimated 14.8 million unemployed, out of a work force of about 154 million. But that number is artificially lower than in the Great Depression because 33 million senior citizens are on Social Security — and not seeking jobs as they were then. An additional 7.4 million adults receive disability payments under Social Security, and some would also have been seeking work in 1933.

But that’s not all. We have a far larger standing military than in 1933 — about 1 percent of the work force, or 1.4 million men and women.

Another 1.6 million people are in jails and prisons, a near-record amount, and again a larger percentage of able-bodied U.S. residents than in 1933. They are excluded from the statistics today.

In other words, 43.4 million people are paid for government employment in the military, or supported through government programs. If added to the jobless numbers, it equals about 58 million people.

…The big difference now is that despair is masked. Social Security and the expansions of unemployment insurance mean that people are able to keep the wolf from the door. The bread lines of the 1930s are food banks.

…Maybe that’s one reason why the American people are so angry at their leaders. They know that many of the government statistics are often just statistical sleight-of-hand.

Kirstin Downey
Politico.com

Are we collectively bankrupt?

U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff

Let’s get real. The U.S. is bankrupt.

Neither spending more nor taxing less will help the country pay its bills.

...Last month, the International Monetary Fund released its annual review of U.S. economic policy.

...the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt.

...It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax”...

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

...How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars...

...This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

...Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

...Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on.

...Our country is broke and can no longer afford no- pain, all-gain “solutions.”

Laurence J. Kotlikoff
Professor of economics at Boston University
Bloomberg Opinion

Sobering Thoughts on the Demographics of the Baby Boom, Savings, Entitlement Benefits and Monetary Policy

If workers earn, pay taxes, spend, save and invest,
while retirees divest, downsize, budget
and draw income and healthcare benefits,
what’s going to happen when more retirees want
what fewer workers may not be able to deliver?

It is incumbent on government to convey to future retirees
that the real resources currently promised to be available on retirement,
will not be fully forthcoming.

Alan Greenspan

…the models are suggesting that the shrinkage in the high savings population cohorts and an expansion in the retired population will alter supply demand dynamics…in a profoundly negative manner.

The unfavorable shift in dependency ratios, combined with sharply increased spending on pensions and healthcare is likely to cause a sustained deterioration in primary fiscal balances and a continuous increase in government debt to GDP ratios.

The common assumption that future savings flows from the large developing economies will be a ready source of finance for the ageing advanced economies is most probably flawed

…It is highly implausible to believe that Africa, the Middle East and India will be capable of funding the rest of the world’s growing population of retirees.

Because the rise in old age dependency ratios is common to virtually all significant economies, the idea that a redistribution of global savings flows from surplus to deficit nations might mitigate the impact of ageing on bond markets is a false comfort.

…Over the next two decades, the boomer generation will age into retirement and run down their accumulated savings. An era of capital abundance will gradually turn into an era of capital scarcity. Government debt burdens will rise sharply…

Given the broad international context for these trends, with similar developments afflicting almost all the world’s major economies, the means by which the government debt burdens are eventually curtailed is unclear.

…yields are likely to require a significant rise in risk premia to cover the eventuality of default, either outright or through inflation.

Tim Bond
Via Alphaville

Did Dan Froomkin just lie to his Huffington Post readers on Social Security and Medicare?

Medicare Gets New Lease On Life; Social Security Program Remains Healthy

The new health care law has significantly improved the prognosis for Medicare, extending the life of its trust fundby 12 years until 2029, and thereby delaying any need for dramatic changes in benefits or revenues...

The annual check-up from government actuaries overseeing the nation's two central safety-net programs also found that Social Security continues to be much less of a problem than Medicare, and will remain in strong financial shape at least through 2037.

"The financial outlook for the Medicare program is substantially improved as a result of the far-reaching changes in the Patient Protection and Affordable Care Act," concludes the Medicare report -- although the trustees warned that the improvements depend on the successful implementation of the law.

Social Security, according to its annual report, is expected to pay out slightly more in benefits than it receives in payroll tax this year... But payroll taxes are only one source of income for the program, and with the others -- including interest income on its $2.5 trillion trust fund, held in special issue U.S. Treasury securities...

The trust fund, which exists in paper form
in a filing cabinet in Parkersburg, W.Va.,
 are bonds backed by the government’s “full faith and credit”
but not by any actual assets.

That trust fund, currently at $2.5 trillion,
has been spent over the years to fund other parts of government. 

  To redeem the trust fund bonds,
the government will have to borrow in public debt markets
or raise taxes.

Ricardo Alsonso-zaldivar and Martin Crutsinger
Associated Press

The program will need to start spending from its trust fund in 2025, with that fund becoming exhausted in 2037, which is consistent with last year's estimate.

But at a press conference Thursday, Social Security Commissioner Michael J. Astrue, one of the government trustees releasing the report, begged reporters not to scare the public by exaggerating the significance of trust fund exhaustion.

"That does not mean that there will be no money left," Astrue said. At that point, even if Congress took no action, Social Security could still pay out 78 percent of expected benefits from annual revenues. "That would be a bad result, but it is a far cry from having no benefits at all," he said.

Inaccurate reporting on the topic tends to "make young people despair about Social Security," he said.

...Astrue said that both reports taken together, along with recent analyses by other groups such as the Congressional Budget Office, show that the new health care law will result in "very, very, very substantial improvements in the rate of growth of health care costs... on a scale that make a very substantial impact on that piece of our long-term fiscal challenges."
 
...Robert Greenstein, a leading liberal budget expert who directs the Center on Budget and Policy Priorities, called attention to what he called the "huge reduction" in Medicare's long-term budget problems. The new report projects an 80 percent reduction in the 75-year shortfall for the Medicare trust fund, from 3.88 percent of taxable payroll to a much more manageable 0.66 percent.

That means Medicare "is in dramatically better financial shape than it was prior to the enactment of the health reform law," even as the law simultaneously improves coverage and reduces premiums, Greenstein told the Huffington Post.

And these are reliable numbers, he said. "These are not political numbers. These numbers are based on the work of the Social Security and Medicare actuaries. Political officials can put whatever spin they want on the numbers, but the numbers themselves are generally not subject to political influence."

...the trustees assumed current law in making their projections,
including a cut in doctor’s Medicare payments of 23 percent
starting in December.

Congress has for years voted
to put more money in the Medicare program
to keep such sharp cuts in doctor’s payments from occurring.

…An April 22 analysis pointed out
that the projected gain of 12 years of additional solvency for Medicare,
a figure that was also used in the health care debate,
was largely an “appearance...”

...some of the $575 billion in Medicare savings over 10 years
“may be unrealistic,” because future Congresses could be pressured
 to roll back cuts to providers in the health care law.

Ricardo Alsonso-zaldivar and Martin Crutsinger
Associated Press

Nancy Altman, co-chairman of the Strengthen Social Security Campaign, said in a statement: "Every year, the trustees' reports become an excuse for fear mongering by those who should know better. This year, the news is especially good for Medicare, thanks to the enactment of health care reform. The news for Social Security is even better..."Politicians should stop scaring the American people. Social Security is strong and should be strengthened, not cut."

Dan Froomkin
Huffington Post

Is Mr. Froomkin suggesting Congress and the President
are going to cut Medicare payments by 23% in December?

Does Mr. Froomkin believe interest payments
from Trust Fund assets
are making up for shortfalls without more borrowing
or taxes?

Social Security Will Pay Out More Than Taxes Recieved In 2010

The annual report of the trustees for Medicare and Social Security...said the Social Security program is projected to pay out more in benefits than it collects in taxes for the first time this year and next year.

...The trustees report said that Social Security pension and disability payments will exceed revenues for this year and 2011, reflecting a deep recession which has knocked millions of people off payrolls, which means they are not paying Social Security payroll taxes.

The report said the program would return to the black in 2012 through 2014 but that benefit payments will again exceed tax collections in 2015. For every year after 2015, the report projects that Social Security will be paying out more than it receives in tax collections under the impact of the retirements of 78 million baby boomers.

The government will then have to turn permanently to its trust fund to make up the difference between Social Security taxes and the benefits being paid out. The trust fund, which exists in paper form in a filing cabinet in Parkersburg, W.Va., are bonds backed by the government's "full faith and credit" but not by any actual assets. That trust fund, currently at $2.5 trillion, has been spent over the years to fund other parts of government.

To redeem the trust fund bonds, the government will have to borrow in public debt markets or raise taxes.

Ricardo Alsonso-zaldivar and Martin Crutsinger
Associated Press