US debt six times greater than declared - study

[Gaugingcatenate]

Is it wrong to be a communist?

Not illegal, just not advisable nor, in my opinion, is it a valid/workable philosophy. So, yes, it is wrong, imo.

 

[Khayembii Communique]

A liability is not a debt. This guy doesn't know what he's talking about.

 

[TheDemSocialist]

Not illegal, just not advisable nor, in my opinion, is it a valid/workable philosophy. So, yes, it is wrong, imo.

And how many communists do you think there are in this country?

 

[Gaugingcatenate]

And the government will never have a revenue problem, as taxes for revenue are obsolete.

Warren Mosler: Taxes For Revenue Are Obsolete

"The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. "

So like I said, it is chicken little fear mongering.

First, I read most the article, felt moved already to comment. and commend you on coming across it, posting it, gives some clear language to things I had wrestled, in more muddled or imprecise fashion, with over the years.

Do not agree in toto, however. Some a bit too broad, needs a little tweaking for all the policy statements, the article and its parentage itself being an influence to political direction... furthermore just brushing past the fact that, "We shall also confine our considerations to the problems of ordinary peacetime taxation since, during wartime, many tax measures, such as the excess-profits tax, have a special justification."

There are those that think the most important consideration in federal taxation might be national defense, not wealth redistribution, et a., and I do agree this should all be considered and decided/settled up front. I also, having lived through what appears a classical example of this, see that there this is at least a third way in addition to the ones described in the article. One that, money being so plentiful producers strove to accommodate those dollars thereby saturating markets, at least locally... which seemed with other factors to leak over into the national as well.

And national defense, if sufficient, saves us so many dollars long run, not to mention misery, death and destruction. Dollars spent up front in measured prudent ways are priceless, even if never utilized...especially if never utilized.

These being the other two mentioned. " If federal taxes are insufficient or of the wrong kind, the purchasing power in the hands of the public is likely to be greater than the output of goods and services with which this purchasing demand can be satisfied. If the demand becomes too great, the result will be a rise in prices, and there will be no proportionate increase in the quantity of things for sale. This will mean that the dollar is worth less than it was before --- that is inflation. On the other hand, if federal taxes are too heavy or are of the wrong kind, effective purchasing power in the hands of the public will be insufficient to take from the producers of goods and services all the things these producers would like to make. This will mean widespread unemployment."

In any event, thougthful stuff...gracias...

 

[JP Hochbaum]

First, I read most the article, felt moved already to comment. and commend you on coming across it, posting it, gives some clear language to things I had wrestled, in more muddled or imprecise fashion, with over the years.

Do not agree in toto, however. Some a bit too broad, needs a little tweaking for all the policy statements, the article and its parentage itself being an influence to political direction... furthermore just brushing past the fact that, "We shall also confine our considerations to the problems of ordinary peacetime taxation since, during wartime, many tax measures, such as the excess-profits tax, have a special justification."

There are those that think the most important consideration in federal taxation might be national defense, not wealth redistribution, et a., and I do agree this should all be considered and decided/settled up front. I also, having lived through what appears a classical example of this, see that there this is at least a third way in addition to the ones described in the article. One that, money being so plentiful producers strove to accommodate those dollars thereby saturating markets, at least locally... which seemed with other factors to leak over into the national as well.

And national defense, if sufficient, saves us so many dollars long run, not to mention misery, death and destruction. Dollars spent up front in measured prudent ways are priceless, even if never utilized...especially if never utilized.

These being the other two mentioned. " If federal taxes are insufficient or of the wrong kind, the purchasing power in the hands of the public is likely to be greater than the output of goods and services with which this purchasing demand can be satisfied. If the demand becomes too great, the result will be a rise in prices, and there will be no proportionate increase in the quantity of things for sale. This will mean that the dollar is worth less than it was before --- that is inflation. On the other hand, if federal taxes are too heavy or are of the wrong kind, effective purchasing power in the hands of the public will be insufficient to take from the producers of goods and services all the things these producers would like to make. This will mean widespread unemployment."

In any event, thougthful stuff...gracias...

Yeah finally a thoughtful response! Thank you!

Yes, to your point that not taxing could one day lead to inflation, that would make the one restraint to this is a lack of resources, not a financial lack.

If we got to the point where inflation was expected, we just raise taxes or raise interest rates.

 

[Gaugingcatenate]

And how many communists do you think there are in this country?

What is your definition of a communist...as yours may differ from mine?

 

[Gaugingcatenate]

A liability is not a debt. This guy doesn't know what he's talking about.

A liability is not necessarily a debt... it most certainly can be a debt.

 

[head of joaquin]

What is your definition of a communist...as yours may differ from mine?

Since you're making allegations of communist infiltration (how quaint), why don't you provide your definition first so we can all gape at it.

 

[head of joaquin]

That is hard to say. The monetary expansion has been pretty large and there is definitely inflation in financial markets. But the transmission mechanism from financial markets to consumer prices is complicated. It usually seems to start via real estate, which is happening here in Europe. We will have to wait and see. But there is a good chance that the corrections we face will have severe consequences for the population. There is no doubt of that danger.

The monetary expansion has been pretty large? It's been huge. Yet still inflation has been all but nonexistent since the Bush Meltdown.

So what does that tell you about this large macroeconomic event brought about by failed conservative policies? What would have happened if we hadn't expanded the money supply?

 

[head of joaquin]

But first we must strike at their leader... OBAMA :roll:

Who in teapartybizarroworld is also a Wall Street Insider. You have to love how the contradiction never occurs to the rightwing noise machine (or rather factual contradictions are irrelevant since facts are irrelevant)

I think it's fair to conclude that words and political concepts mean nothing to conservatives. It's talking points all the way down.

 

[joG]

The monetary expansion has been pretty large? It's been huge. Yet still inflation has been all but nonexistent since the Bush Meltdown.

So what does that tell you about this large macroeconomic event brought about by failed conservative policies? What would have happened if we hadn't expanded the money supply?

One thing that would not have happened is the dot.com bubble. Had Greenspan less accommodating stock prices would not have inflated as much as they did. Probably fewer taxes would have been paid and we would have been forced as a nation to spend less. What other consequences there would have been in unclear.

 

[imagep]

One thing that would not have happened is the dot.com bubble. Had Greenspan less accommodating stock prices would not have inflated as much as they did. Probably fewer taxes would have been paid and we would have been forced as a nation to spend less. What other consequences there would have been in unclear.

So with fewer taxes, the budget likely wouldn't have been balanced. And with a nation spending less, we would have had lower corporate profits and fewer jobs, and more spending on welfare and unemployment.

Sounds to me that Greenspan did a pretty good job at keeping managing our economy. The burst of the dot.com bubble did contribute to a mild recession, but nothing like the recession that happened when the housing bubble burst.

Some believe that these bubbles are much more caused by too much "extra" money accumulating in the hands of the rich, who then seek to make a profit on their excess money, and pretty much without regards to risk (as it is excess that they can afford to lose). I'm not so sure that it is a larger monetary base that causes money to pool in the hands of the rich, seems to be that the pooling of money is perfectly natural. Any time that individuals have more of something than they need, they tend to value it less, and are thus more likely to take stupid risks with it, or to get caught up in bubble mania. This is pretty much evidenced by the fact that so many seemingly intellegent people are willing to simply hand over their excess money to a ponzi scheme operator.

I suspect that higher taxes on pooled money, and lower taxes on the consumer class (who would have then borrowed less, been able to save larger down payments, and would have tended to increase demand and thus production), would have done much more to prevent bubbles than a smaller monetary base.

 

[JoeTheEconomist]

The United States has accumulated over $70 trillion in unreported debt, an amount nearly six times the declared figure, according to a new study by University of California-San Diego economics Professor James Hamilton.........US debt six times greater than declared - study ? RT USA

The real shocker in the report, however, came with the cost of Medicare and Social Security, which ran at $27.6 trillion and $26.5 trillion respectively. Hamilton could not conceal his surprise at the findings. “These numbers are so huge it is hard even to discuss them in a coherent way,” he said before providing a caveat on the US demographic situation. “The US population is aging, and an aging population means fewer people paying in and more people expecting benefits.....

Your basic point is correct that the government's budget reporting is understates our financial problems. The inclusion of Social Security is not appropriate though. It is not an obligation of the US Government - see Flemming V Nestor 1960. The Trustees report the shortfall because it represents promises for which there is no cash. In a good economy, that shortfall will start affecting people in 2033 when benefits are automatically cut.

So the exposure of Social Security to the 26,500 trillion that you mention is purely a matter of political choice. If voters want to pay the bill, then they pay it. Otherwise benefits are cut.

 

[JoeTheEconomist]

The monetary expansion has been pretty large? It's been huge. Yet still inflation has been all but nonexistent since the Bush Meltdown.

So what does that tell you about this large macroeconomic event brought about by failed conservative policies? What would have happened if we hadn't expanded the money supply?

Actually it tells you nothing about conservative policies. It tells you a great deal about people who quote data that they don't fully understand.

Reported inflation is a basket of goods. Some items are subject to deflation while other are showing signs of significant inflation. Monetary policy affects inflation, but it is only one factor. Prices aren't just a factor of money supply, but supply of goods as well. If you look at things where supply is constrained - gold for example - you have massive inflation. This is seen in medical costs, food, energy, and basic materials. On the other side my hockey tickets have fallen 60%. You see these things as washing out to no inflation.

Today there remains significant over-capacity in many industries such that no one has pricing power. As excess capacity is washed out, you will see inflation. The other factor is that the US remains the best house in a bad neighborhood. Most of the other countries are printing money as fast as we are. So we are still able to attract foreign capital.

 

[joG]

So with fewer taxes, the budget likely wouldn't have been balanced. And with a nation spending less, we would have had lower corporate profits and fewer jobs, and more spending on welfare and unemployment.

Sounds to me that Greenspan did a pretty good job at keeping managing our economy. The burst of the dot.com bubble did contribute to a mild recession, but nothing like the recession that happened when the housing bubble burst.

Some believe that these bubbles are much more caused by too much "extra" money accumulating in the hands of the rich, who then seek to make a profit on their excess money, and pretty much without regards to risk (as it is excess that they can afford to lose). I'm not so sure that it is a larger monetary base that causes money to pool in the hands of the rich, seems to be that the pooling of money is perfectly natural. Any time that individuals have more of something than they need, they tend to value it less, and are thus more likely to take stupid risks with it, or to get caught up in bubble mania. This is pretty much evidenced by the fact that so many seemingly intellegent people are willing to simply hand over their excess money to a ponzi scheme operator.

I suspect that higher taxes on pooled money, and lower taxes on the consumer class (who would have then borrowed less, been able to save larger down payments, and would have tended to increase demand and thus production), would have done much more to prevent bubbles than a smaller monetary base.

Well actually the second bubble was just a rerun of the first and had pretty much the same cause. It just caused more damage, because it was not a purely financiel bubble. The inflation had started to spill over into the real economy, where it does much more direct harm and is more visible to the man on the street.

You are right, however, that we did have a long and good run. It is probable, however, that continuose fiscal and monetary largess do not achieve the level of economic well being as could be if government borrowed at optimal levels and monetary growth did not exceed the requirements of growth. Asset inflation is really quite destructive, you see.

As far as the arguments about accumulation of wealt are concerned, I have not seen very much evidence of bubbles caused by the rich. Usually what I have seen were situations, where institutional investors (not wealthy people) had to find income that was not there, because their bonuses and jobs depend on portfolio performance. This drives nominal earnings, interest rates and risk premiums down below their real values. Which leads us back the the Fed pushing too much money into the system and the government overborrowing.

 

[JoeTheEconomist]

So with fewer taxes, the budget likely wouldn't have been balanced. And with a nation spending less, we would have had lower corporate profits and fewer jobs, and more spending on welfare and unemployment.

Sounds to me that Greenspan did a pretty good job at keeping managing our economy. The burst of the dot.com bubble did contribute to a mild recession, but nothing like the recession that happened when the housing bubble burst.

Some believe that these bubbles are much more caused by too much "extra" money accumulating in the hands of the rich, who then seek to make a profit on their excess money, and pretty much without regards to risk (as it is excess that they can afford to lose). I'm not so sure that it is a larger monetary base that causes money to pool in the hands of the rich, seems to be that the pooling of money is perfectly natural. Any time that individuals have more of something than they need, they tend to value it less, and are thus more likely to take stupid risks with it, or to get caught up in bubble mania. This is pretty much evidenced by the fact that so many seemingly intellegent people are willing to simply hand over their excess money to a ponzi scheme operator.

I suspect that higher taxes on pooled money, and lower taxes on the consumer class (who would have then borrowed less, been able to save larger down payments, and would have tended to increase demand and thus production), would have done much more to prevent bubbles than a smaller monetary base.

The dot.com bubble would have been less severe. Your point that we would have had a balanced budget is probably right. In fact we would have had a deficit in the hundreds of billions. And we would be spared the talk about how Bush was left with a budget surplus.

Bubbles form when people ignore risk. The fact that money flows to them has nothing to do with whether the rich have idle money or not. If this were true, the rich would cease to be rich at some point in the cycles of bubbles. Interest is the cost of risk. As poor of a job as Greenspan did in the 90s with pricing risk, he did an even worse job in the Bush years. This is why the housing bubble grew the size that it did. Bernanke raised rates and that was the beginning of the end.

In the LTCM, Greenspan told the world that you can do really stupid things and the US taxpayer will bail you out. Bernanke re-enforced this with the bailout of Bear Stearns. It is little wonder that when facing a massive capital crunch, the leadership of Lehman, Morgan Stanley, and the like figured that there is no point financing stupidity with equity. Months before the crash, all of these players had secondary offerings to shore-up capital. Lehman was selling north of $20/share, and they raised about 10 billion dollars.

 

[JoeTheEconomist]

Well actually the second bubble was just a rerun of the first and had pretty much the same cause. It just caused more damage, because it was not a purely financiel bubble. The inflation had started to spill over into the real economy, where it does much more direct harm and is more visible to the man on the street.

You are right, however, that we did have a long and good run. It is probable, however, that continuose fiscal and monetary largess do not achieve the level of economic well being as could be if government borrowed at optimal levels and monetary growth did not exceed the requirements of growth. Asset inflation is really quite destructive, you see.

As far as the arguments about accumulation of wealt are concerned, I have not seen very much evidence of bubbles caused by the rich. Usually what I have seen were situations, where institutional investors (not wealthy people) had to find income that was not there, because their bonuses and jobs depend on portfolio performance. This drives nominal earnings, interest rates and risk premiums down below their real values. Which leads us back the the Fed pushing too much money into the system and the government overborrowing.

Bubbles by themselves did not cause the problems that we experienced in the financial crisis. The crisis stemmed from the concentration of risk in very large financial institutions. The investment banks had too much exposure. AIG had guaranteed those exposures on levels that they couldn't insure. When it fails, it causes other financial companies to fail. Had the housing exposure been more spread-out.

Look at MF Global. It was the 8th largest bankruptcy in the nation's history. It didn't bring down the commodities business or Wall Street as a whole because few other investment banks had the level of risk concentrated in the European Bond market. MF Global crashed and burned, but there was no one to take down with them. That wasn't the case in the housing crash, where everyone had taken on unreasonable levels of risk.

 

[imagep]

...As far as the arguments about accumulation of wealt are concerned, I have not seen very much evidence of bubbles caused by the rich. Usually what I have seen were situations, where institutional investors (not wealthy people) had to find income that was not there, because their bonuses and jobs depend on portfolio performance. This drives nominal earnings, interest rates and risk premiums down below their real values. Which leads us back the the Fed pushing too much money into the system and the government overborrowing.

great post!

The reason that I say that accumulated wealth contributes to bubbles is that the money which creates bubbles comes from somewhere. If we didn't have massive amounts of "excess" pooled money, there wouldn't be the money to create bubbles. In the dot.com bubble, the majority of dotcom investors were fairly wealthy (although a heck of a lot of middle class investors jumped on the bandwagon), and in the housing bubble, it was people with excess money who were funding the loans (directly or indirectly by purchasing CDOs). In both cases, if there was less income and wealth disparity, there wouldn't have been the funds available to run up prices of either dotcoms or real estate.

And of course there is always a lot of out of control mania in any bubble, even going back to the tulip bubble in Holland. People should have realized that dotcoms which had absolutely no income model and not even a solid plan for one could never be profitable, at least not enough to justify the startup costs, and we should have realize that long term there was no way that a 1200 sf house in a bad neighborhood was worth $800k, not even in southern california.

 

[JoeTheEconomist]

great post!

In the dot.com bubble, the majority of dotcom investors were fairly wealthy (although a heck of a lot of middle class investors jumped on the bandwagon), and in the housing bubble, it was people with excess money who were funding the loans (directly or indirectly by purchasing CDOs). In both cases, if there was less income and wealth disparity, there wouldn't have been the funds available to run up prices of either dotcoms or real estate.

Do you have a source on the statement about the distribution of dotcom investors?

I think you will find that the majority of dotcom investors were people who didn't realize that dotcoms had aboslutely no income model. I am not sure why you would connect this group to people who were fairly wealthy.

 

[joG]

Bubbles by themselves did not cause the problems that we experienced in the financial crisis. The crisis stemmed from the concentration of risk in very large financial institutions. The investment banks had too much exposure. AIG had guaranteed those exposures on levels that they couldn't insure. When it fails, it causes other financial companies to fail. Had the housing exposure been more spread-out.

Look at MF Global. It was the 8th largest bankruptcy in the nation's history. It didn't bring down the commodities business or Wall Street as a whole because few other investment banks had the level of risk concentrated in the European Bond market. MF Global crashed and burned, but there was no one to take down with them. That wasn't the case in the housing crash, where everyone had taken on unreasonable levels of risk.

True. There was too much risk concentrated in AIG and a number of other institutions, that could handle the CDS business and had top ratings. The ratings would have been ok, if less money had had to be parked. Then there would have been fewer high risk mortgages made and packaged. The systemic risk would have been much lower and the crash would have been less destructive. That risk was however driven by the gigantic amount of money sloshing through the system and looking for a home. We are seeing the same in Govies OECD wide at the moment and it is pretty sure that it is uncertain that the system can be held stable. Government bond prices will fall at one point or another and slow economic growth. The question seems to me to be whether or not it can be controlled. In the case of the PIIGS we were only able to control the crash in so far as we contained it. But where you are lokking at unemployment of 30-45% in the population and 50-60% of the youth, the risk of the bubble seems to me quite obvious.

 

[joG]

great post!

The reason that I say that accumulated wealth contributes to bubbles is that the money which creates bubbles comes from somewhere. If we didn't have massive amounts of "excess" pooled money, there wouldn't be the money to create bubbles. In the dot.com bubble, the majority of dotcom investors were fairly wealthy (although a heck of a lot of middle class investors jumped on the bandwagon), and in the housing bubble, it was people with excess money who were funding the loans (directly or indirectly by purchasing CDOs). In both cases, if there was less income and wealth disparity, there wouldn't have been the funds available to run up prices of either dotcoms or real estate.

And of course there is always a lot of out of control mania in any bubble, even going back to the tulip bubble in Holland. People should have realized that dotcoms which had absolutely no income model and not even a solid plan for one could never be profitable, at least not enough to justify the startup costs, and we should have realize that long term there was no way that a 1200 sf house in a bad neighborhood was worth $800k, not even in southern california.

Oh yes. You are quite right. It is certainly excess money sloshing around the system that allows bubbles on the scary scale we have witnessed. This seems to point to government and central banks miss-functioning. There was a discussion of this in the mid 1990ies. At the time nobody had the stomach to take away the punchbowl. Conventional inflation was not evident it was argued and asset inflation was not well enough understood.

 

[JoeTheEconomist]

True. There was too much risk concentrated in AIG and a number of other institutions, that could handle the CDS business and had top ratings. The ratings would have been ok, if less money had had to be parked. Then there would have been fewer high risk mortgages made and packaged. The systemic risk would have been much lower and the crash would have been less destructive. That risk was however driven by the gigantic amount of money sloshing through the system and looking for a home. We are seeing the same in Govies OECD wide at the moment and it is pretty sure that it is uncertain that the system can be held stable. Government bond prices will fall at one point or another and slow economic growth. The question seems to me to be whether or not it can be controlled. In the case of the PIIGS we were only able to control the crash in so far as we contained it. But where you are lokking at unemployment of 30-45% in the population and 50-60% of the youth, the risk of the bubble seems to me quite obvious.

Which do you think created the risk (a) excess money in the system (b) the risk-reward for senior managers at investment banks. For a standard manager, the risk is measured in other people's money. They borrow massive amounts of money to throw it at low margin investments. If you lose, the bond lender loses. If you win you collect a massive bonus. Virtually no one is going to jail for the Financial Crisis. When you combine option B with subsidized interest rates, you get option A as an outcome. Investment managers will borrows insane amounts to through it at anything above the cost hurtle.

For what it is worth, I manage wealth for conservative investors. I do the last paragraph for them. What makes them conservative is the time horizon and leverage. We use 50% leverage. People like me are driven out of the market by people who are willing to leverage themselves by a factor of 20 and 30 times capital.

The PIIGS are backed by us. So their internals will not change or need to change until we are unwilling to subsidize their excess.

 

[imagep]

Which do you think created the risk

(a) excess money in the system

Not just excess money, but excess money pooled with the few, in amounts so staggering that those who possess this money loose there sense of value, and basically just want a place to stash it, almost without regard to the outcome. For someone who is perfectly happy living on a half million dollars a year, and who can acquire that half million, after tax, from just $10 million in conservative investments, everything over that $10 million is essentially excess, money that they don't need, and don't particularly care about, other than it represents "points" in the game of life.

(b) the risk-reward for senior managers at investment banks. For a standard manager, the risk is measured in other people's money. They borrow massive amounts of money to throw it at low margin investments. If you lose, the bond lender loses. If you win you collect a massive bonus.

Absolutely. And you stated that so plainly that even an idiot like me can understand.

 

[TheDemSocialist]

What is your definition of a communist...as yours may differ from mine?

Well there is only one dfeinition of communist. A communist is a person who advocated a classless, stateless, society, and a system of social organization based on the holding of all property in common by the people at large.

 

[head of joaquin]

One thing that would not have happened is the dot.com bubble. Had Greenspan less accommodating stock prices would not have inflated as much as they did. Probably fewer taxes would have been paid and we would have been forced as a nation to spend less. What other consequences there would have been in unclear.

The dot.com bubble wasn't really a bad thing. It set the stage for the current productivity of the internet.

But if you want to prevent bubbles, the solution is easy -- raise taxes on the top bracket. Top bracket dollars is the source of virtually all bubbles.