I get this sinking feeling sometimes, which I am sure comes as a big surprise given my obsession with doom. I am not sure where it comes from or why it takes me over, but it pushes me to the point of paralysis. So, I hope you are asking, what is the feeling?
I begin wondering, what is the point of doing anything at all? I read and listen to a lot of talk about saving the world in some shape or form and although it may be well-intentioned, would it really be worth it to save the world for humanity? Sure, there are any number of interesting things that people are doing around the world, but “saving the world” seems like it has more to do with maintaining or improving the familiar. Saving the world also is embedded in a deeply held arrogance that we can make things better. I don’t think things can or will get better for the people of the world in the way that we now define the term.
Life might be able to get better at some point, but there are a lot of psychological stumbling blocks in the way. So to find out whether or not you are ready for what the future is about to slap you with, I have assembled the following list of ten questions. Check your score once you are done to find out where you stand…
Question 1: Is my job safe from the current recession?
a) No
b) Yes
Question 2: If I lose my job, the first thing I will do is…
a) file for unemployment
b) look for another similar job
c) take stock of my professional/economic life and try to think of sustainable alternatives to my current career.
Question 3: When I plan my future, the main concern is…
a) where I will spend my retirement
b) whether my pension and social security will be available
c) how I will acquire food, shelter, energy and who will care for me when I am old
Question 4: If I have kids, I tell them…
a) get a college education because they will need it to start a good career
b) they should invest their money in the stock market when they are young so they will have plenty for retirement
c) the future is uncertain and it is best to try to learn a little bit about everything
Question 5: Which of the following matches your vision of the future?
a) Humanity will face and address certain problems adequately
b) Life will be the same with more gadgets and fatter people
c) The future is totally up in the air and I will make the best of it
Question 6: When you are in a tight spot, how many non-family members can you depend on for help?
a) 0
b) 1-2
c) 3 or more
Question 7: How many miles do you live from work?
a) 0
b) less than 10
c) more than 10
d) I travel for work
Question 8: Who do you buy your electricity and water from, where does it come from and how far are you from centralized infrastructure?
a) what?
b) I know who and where it comes from
c) I am off the grid, or able to transition easily off the grid
Question 9: Where does your food come from?
a) chain restaurants and grocery stores
b) local restaurants and grocery stores
c) farmers and my own back yard
d) both b and c
e) a, b, and c
Question 10: Do you have any chronic medical conditions you are treating with medication? Are there non-traditional or dietary techniques to treat your condition?
a) yes and I don’t know
b) yes and no
c) yes and yes
d) no and it doesn’t matter
If you answered all of these questions, I love you. What I tried to do is gauge your level of self-reliance. The top score is 19, which I doubt anyone would get, but it is possible. My score was a 9, but I have a lot of uncertainty in my life right now, so hopefully I can improve that soon. Here are the point breakdowns:
Q 1: a) 0 b) 2
Q 2: a) 0 b) 1 c) 2
Q 3: a) 0 b) 1 c) 2
Q 4: a) 0 b) 0 c) 1
Q 5: a) 0 b) 1 c) 2
Q 6: a) 0 b) 1 c) 2
Q 7: a) 2 b) 1 c) 0 d) -1
Q 8: a) 0 b) 1 c) 2
Q 9: a) -1 b) 0 c) 2 d) 1 e) 0
Q 10: a) -1 b) 0 c) 1 d) 2
Sunday, October 3, 2010
US national debt maintenance
Oh my god, are you excited or what? I am gonna write about interest payments on the national debt now. I can just feel the excitement from all three of you. Anyway, I never find anything online to explain how this works in a clear way. Every year, the US government gives rich people 100’s of billions of dollars in interest payments on the national debt. This article will discuss the make up of the national debt, where the interest payments actually go and the future implications of carrying such a severe debt burden.
Look at this kitten, doesn’t it make you want to read more?
When I say, “national debt maintenance,” I mean the interest that the US government pays to holders of the national debt. As of the conclusion of fiscal year 2008, the national debt was about $10 trillion. Over half of that debt is privately held, meaning that investors own it. The remainder is tied up in the government’s welfare trust funds. Here are two graphs, the first one shows the division of debt between public and private and the second shows the amount of debt the US government paid on the debt to both public and private debt-holders.
GAS Type Securities
A large portion of the national debt is held within the government by the welfare trust funds. This debt maintenance falls under the Government Account Series or GAS portion of the national debt. Currently, the trust funds hold about $4.2 Trillion in treasury securities which the taxpayers paid $212 billion dollars during fiscal year 2008 for interest payments. What this means is right now, Medicare and Social Security payroll taxes are bringing in more money than the programs cost. The government decided that instead of this left over “money” just sitting around, it should be earning interest by “buying” treasury securities – or financing the rest of the government. The actual status of this money is up in the air, however. There are essentially two kinds of thinking about the GAS trust funds.
1. The trust fund is a debt the federal government owes to the future beneficiaries of Social Security. This means that when Social Security is no longer “pay as you go” – meaning tax receipts no longer cover the benefits that are due – the trust fund will be drawn upon to make those payments.
2. The trust fund is an accounting gimmick. The federal government collected payroll taxes (in the form of social security and medicare) and instead of rebating the overpayments annually back to taxpayers for money that was not used to cover benefits, the government kept the extra money and spent it on other programs. The GAS’s are worthless pieces of paper that are collecting “interest” in the form of more GAS’s. There is no real value in the trust funds at all. Once payroll tax income no longer covers receipts the government will have to either; create debt to cover this debt (an accounting change), slash benefits to a level in-line with current revenues or raise some other sort of tax to pay back the debts to the trust funds.
Either of the above scenarios essentially mean that the government created a loophole with which they could raise revenue under the guise of social welfare programs to finance the rest of the budget. In other words, the GAS-type security is a figment of our collective imagination. There is no money there, the $212 billion “spent” this past fiscal year on maintenance of this debt is fake too. Even though the government “paid” it out, no money ever changed hands so the transaction didn’t actually mean anything.
Publicly Held Debt
There are several different classes of debt instruments that the Treasury sells to the public, you can read about them here if you want. For my purposes, the only really important information is the lifespan of each instrument and how much of the public debt is held under each lifespan. About $5.8 trillion of the national debt is publicly held. The interest paid on this money in fiscal year 2008 was $238 billion. This means that in the past 12 months, the taxpayers have paid $238 billion in interest payments to investors that are holding and trading treasuries. A lot of talk goes into geographically where the money goes. This is not particularly important to me because rich people are rich people, no matter their nationality. However, roughly $2.4 trillion of the publicly held debt is financed by international investors. Which means that in the last year we have sent about $98 billion out of the country in interest payments.
The securities that are publicly held are broken down into the following different classes of debt instruments:
$1.1 trillion in Bills with 1 year or less life
$2.5 trillion in Notes with 2 to 10 year life
$1.6 trillion in other securities with variable life
$571 billion in Bonds with 10 to 30 year life
The first 3 classes of securities are the ones that matter are the first 3. These three are impacted more severely by the fluctuation of short-term interest rates than the bonds are because of the long lifetime of bonds. In times like the past few years, with low interest rates, the maintenance of these short-term instruments have been relatively inexpensive (if you can consider roughly $180 billion/year inexpensive). If we enter into a period of higher interest rates due to stronger than usual inflation (or in the worst case scenario, hyper-inflation) the cost will be quite a bit more expensive.
Future Problems
Looking to the future, there are three major problems that face the government regarding debt maintenance. In no particular order they are, the impact of inflation and possible hyper-inflation on interest rates (higher), the good rating that Treasuries currently hold could falter (higher), geopolitical ramifications of being a debtor nation.
First, as I mentioned earlier, if inflation is high, interest rates will be high and more interest will have to be paid to treasury holders. Even a one point change in the interest rates (which are currently low, varying between 1% and 8% depending on the type of treasury) will have a drastic impact on total amount paid out every year. The nightmare scenario that will “never happen again” would be the ridiculous rates of the late 70’s (nearly 20%) if this is the worst case scenario.
Second, if the rating of the US Government is downgraded to junk bond status (which is a possibility if confidence falters in the dollar as the world’s reserve currency), interest rates, regardless of inflationary pressures, must go up in order to entice investors. The greatest likely contribution to this decision would be talk of defaulting on the investments held by the government to save money. This is a possibility, the other possibility would be a liquidation of the government held securities (the accounting change I talked about) switching this debt over to private hands. This would lead to a flooded market of government securities with a lack of buyers to pick them up at any reasonable price to the government.
Thirdly, the country also faces a sort of sovereignty crisis due to our foreign debt.
In the short term (2-5 years), I don’t think there will be any major alarm bells. However, beyond that short term window (and particularly as welfare programs are no longer generating surpluses) the outlook for the stability of the US Government is bleak. The government must address the issue of the trust funds as well as continual budget deficits. In the short term, deficit spending beyond even what we experienced this year will be necessary. But if there is any economic recovery, taxes must be increased and spending must be cut drastically in order to relieve the long term problems of the debt.
Broke and screwed,
mike
Look at this kitten, doesn’t it make you want to read more?
When I say, “national debt maintenance,” I mean the interest that the US government pays to holders of the national debt. As of the conclusion of fiscal year 2008, the national debt was about $10 trillion. Over half of that debt is privately held, meaning that investors own it. The remainder is tied up in the government’s welfare trust funds. Here are two graphs, the first one shows the division of debt between public and private and the second shows the amount of debt the US government paid on the debt to both public and private debt-holders.
GAS Type Securities
A large portion of the national debt is held within the government by the welfare trust funds. This debt maintenance falls under the Government Account Series or GAS portion of the national debt. Currently, the trust funds hold about $4.2 Trillion in treasury securities which the taxpayers paid $212 billion dollars during fiscal year 2008 for interest payments. What this means is right now, Medicare and Social Security payroll taxes are bringing in more money than the programs cost. The government decided that instead of this left over “money” just sitting around, it should be earning interest by “buying” treasury securities – or financing the rest of the government. The actual status of this money is up in the air, however. There are essentially two kinds of thinking about the GAS trust funds.
1. The trust fund is a debt the federal government owes to the future beneficiaries of Social Security. This means that when Social Security is no longer “pay as you go” – meaning tax receipts no longer cover the benefits that are due – the trust fund will be drawn upon to make those payments.
2. The trust fund is an accounting gimmick. The federal government collected payroll taxes (in the form of social security and medicare) and instead of rebating the overpayments annually back to taxpayers for money that was not used to cover benefits, the government kept the extra money and spent it on other programs. The GAS’s are worthless pieces of paper that are collecting “interest” in the form of more GAS’s. There is no real value in the trust funds at all. Once payroll tax income no longer covers receipts the government will have to either; create debt to cover this debt (an accounting change), slash benefits to a level in-line with current revenues or raise some other sort of tax to pay back the debts to the trust funds.
Either of the above scenarios essentially mean that the government created a loophole with which they could raise revenue under the guise of social welfare programs to finance the rest of the budget. In other words, the GAS-type security is a figment of our collective imagination. There is no money there, the $212 billion “spent” this past fiscal year on maintenance of this debt is fake too. Even though the government “paid” it out, no money ever changed hands so the transaction didn’t actually mean anything.
Publicly Held Debt
There are several different classes of debt instruments that the Treasury sells to the public, you can read about them here if you want. For my purposes, the only really important information is the lifespan of each instrument and how much of the public debt is held under each lifespan. About $5.8 trillion of the national debt is publicly held. The interest paid on this money in fiscal year 2008 was $238 billion. This means that in the past 12 months, the taxpayers have paid $238 billion in interest payments to investors that are holding and trading treasuries. A lot of talk goes into geographically where the money goes. This is not particularly important to me because rich people are rich people, no matter their nationality. However, roughly $2.4 trillion of the publicly held debt is financed by international investors. Which means that in the last year we have sent about $98 billion out of the country in interest payments.
The securities that are publicly held are broken down into the following different classes of debt instruments:
$1.1 trillion in Bills with 1 year or less life
$2.5 trillion in Notes with 2 to 10 year life
$1.6 trillion in other securities with variable life
$571 billion in Bonds with 10 to 30 year life
The first 3 classes of securities are the ones that matter are the first 3. These three are impacted more severely by the fluctuation of short-term interest rates than the bonds are because of the long lifetime of bonds. In times like the past few years, with low interest rates, the maintenance of these short-term instruments have been relatively inexpensive (if you can consider roughly $180 billion/year inexpensive). If we enter into a period of higher interest rates due to stronger than usual inflation (or in the worst case scenario, hyper-inflation) the cost will be quite a bit more expensive.
Future Problems
Looking to the future, there are three major problems that face the government regarding debt maintenance. In no particular order they are, the impact of inflation and possible hyper-inflation on interest rates (higher), the good rating that Treasuries currently hold could falter (higher), geopolitical ramifications of being a debtor nation.
First, as I mentioned earlier, if inflation is high, interest rates will be high and more interest will have to be paid to treasury holders. Even a one point change in the interest rates (which are currently low, varying between 1% and 8% depending on the type of treasury) will have a drastic impact on total amount paid out every year. The nightmare scenario that will “never happen again” would be the ridiculous rates of the late 70’s (nearly 20%) if this is the worst case scenario.
Second, if the rating of the US Government is downgraded to junk bond status (which is a possibility if confidence falters in the dollar as the world’s reserve currency), interest rates, regardless of inflationary pressures, must go up in order to entice investors. The greatest likely contribution to this decision would be talk of defaulting on the investments held by the government to save money. This is a possibility, the other possibility would be a liquidation of the government held securities (the accounting change I talked about) switching this debt over to private hands. This would lead to a flooded market of government securities with a lack of buyers to pick them up at any reasonable price to the government.
Thirdly, the country also faces a sort of sovereignty crisis due to our foreign debt.
In the short term (2-5 years), I don’t think there will be any major alarm bells. However, beyond that short term window (and particularly as welfare programs are no longer generating surpluses) the outlook for the stability of the US Government is bleak. The government must address the issue of the trust funds as well as continual budget deficits. In the short term, deficit spending beyond even what we experienced this year will be necessary. But if there is any economic recovery, taxes must be increased and spending must be cut drastically in order to relieve the long term problems of the debt.
Broke and screwed,
mike
What is the National Debt?
I would like for all of you to pretend with me for a minute. Say we all have excellent credit ratings and we have access to virtually boundless amounts of borrowed money. Now, the kicker of this deal is that we also don’t have to ever pay any of the money back, all we have to do is pay interest and keep borrowing. Doesn’t sound bad at all does it?
US Debt Clock
That is how life would be if you were the US government. Almost every year since the turn of the 20th century, the US government has spent more money than it has earned. There are a number of reasons for this, but the most basic is a politician can easily justify spending money on different programs that s/he feels will benefit his/her image with the voters. On the other hand, it is very difficult to convince voters that they should pay more taxes to pay off debt accrued in the past. Keep in mind that the main task for an elected official is to win the next election or position your party to succeed you upon retirement – all other tasks are secondary. I will get into a possible rationale for this mentality later, but for now I will stick to the debt.
So, every year the level of government borrowing increases. Which means every year the government has to go out into the market and find investors for their treasury securities (bonds and T-Bills) for most of the money it needs to borrow. The rest of the money is “borrowed” from the welfare trust funds, mainly Social Security and Medicare – I will talk more about this later as well. Since the government has to pay interest on growing sums of money each year, like any other borrower, a certain portion of each annual budget is directed at paying money to owners of the debt. When interest rates to borrow money are low like they have been thus far in 2009, this is a fairly cheap way to run a government in the short term. Since easy money is readily available for politicians to borrow, they can keep taxes low and spending high. But if – and I would say when – the interest rates go up, paying the interest on the debt will become increasingly expensive. An analogy here would be the teaser rate offered by a credit card or mortgage company to sucker you in to borrowing and spending. At first it is easy to keep up with the interest payments and still increase your spending, but once the rate spikes upward, you are saddled with a debt you can’t repay.
In the media, when this issue is discussed, it seems that many talking heads have a hard time explaining something this simple. I won’t get conspiratorial on you and say that they are intentionally obfuscating, so we will just assume that they are fucking idiots. So, these overpaid-underinformed idiots talk about two words (sometimes interchangeably) when they talk about fiscal imbalance; deficit and debt.
A deficit is the amount the government must borrow every year in order to pay for all of its spending programs after all tax money has been exhausted. I am sorry if you feel like a third grader when I am writing this, but if you get your news from the mainstream media (or if you are in the mainstream media) I feel like the definition of terms is necessary. It isn’t your fault, you are probably not stupid. You are just being informed about issues by fucking idiots.
Where was I? Oh yeah, debt. The debt is the total amount that the US government owes investors for all of the deficits it has ever run. You may remember the famous debt clock located near Time Square in NYC that is occasionally mentioned in the media.
If the numbers in the picture at the top seem really big to you don’t worry, they are terribly outdated and much larger than that now. As of 7/20/2009 the US government owes $11.35 trillion ($11,350,000,000,000). It is estimated that the interest cost on the debt for 2009 will be around $500 billion. That means that the government will either need to tax or borrow $500 billion more than it otherwise would just to stay current with its creditors. To add some perspective on that number, that is more than the US government spends on the wars in Afghanistan and Iraq ($136 billion) and federal health care programs ($353 billion) combined!
There are many economists and government bureaucrats that will say that although this debt is large, it isn’t too big in relation to the US economy’s gross domestic product (GDP) – the sum total of all economic activity in the country. Left leaning economists will justify budget deficits during tough economic times because government spending can spur economic growth. What they do not mention is the other side of this Keynsian argument, once the economy recovers the government should cut spending and raise taxes to pay back the debt.
Before I go on further, I would like to mention that the debt or deficit spending is not a problem of democrats or republicans. Both parties are good at two things, blaming the other party for deficit spending and voting for huge spending increases whenever it is beneficial to their political aspirations. It seems to particularly be the case when one party controls both the executive and legislative branches (as the democrats do now and the republicans did for a good chunk of time under Bush). Conversely, while Clinton was president and the republicans ran congress (most of the time), the total debt increased by only (ha ha ha) around $1 trillion in 8 years. In Bush’s 8 years the debt increased by about $5 trillion and in the first few months of Obama’s presidency the debt has increased more than $1 trillion. I had mentioned in an earlier post just in passing that it took Bush 8 years to double the debt and I think that Obama may be able to do it in 4. The way he is going he may be able to do even more than double it in his first term.
Perhaps the most interesting thing about the debt, and about deficit spending, is that it is seldom discussed in a manner that clearly explains the issue by politicians. I am not sure why this is, partially because they are successful politicians and are therefore adept at manipulating information to their benefit – while avoiding subjects that don’t have much of an upside. I can’t imagine how a politician could explain to a constituency that the government dumps hundreds billions of dollars every year with no return and no end in sight in a way that would be useful to said politician in any way. Maybe we should start calling the interest payments bailouts and that will get people’s attention. I don’t know how people will pay attention to it, but it is certainly the most effective fleecing of the government. It is also not very sexy as far as the people running the news cycle are concerned.
Hopefully more people like me that are writing about this will get people to pay attention.
US Debt Clock
That is how life would be if you were the US government. Almost every year since the turn of the 20th century, the US government has spent more money than it has earned. There are a number of reasons for this, but the most basic is a politician can easily justify spending money on different programs that s/he feels will benefit his/her image with the voters. On the other hand, it is very difficult to convince voters that they should pay more taxes to pay off debt accrued in the past. Keep in mind that the main task for an elected official is to win the next election or position your party to succeed you upon retirement – all other tasks are secondary. I will get into a possible rationale for this mentality later, but for now I will stick to the debt.
So, every year the level of government borrowing increases. Which means every year the government has to go out into the market and find investors for their treasury securities (bonds and T-Bills) for most of the money it needs to borrow. The rest of the money is “borrowed” from the welfare trust funds, mainly Social Security and Medicare – I will talk more about this later as well. Since the government has to pay interest on growing sums of money each year, like any other borrower, a certain portion of each annual budget is directed at paying money to owners of the debt. When interest rates to borrow money are low like they have been thus far in 2009, this is a fairly cheap way to run a government in the short term. Since easy money is readily available for politicians to borrow, they can keep taxes low and spending high. But if – and I would say when – the interest rates go up, paying the interest on the debt will become increasingly expensive. An analogy here would be the teaser rate offered by a credit card or mortgage company to sucker you in to borrowing and spending. At first it is easy to keep up with the interest payments and still increase your spending, but once the rate spikes upward, you are saddled with a debt you can’t repay.
In the media, when this issue is discussed, it seems that many talking heads have a hard time explaining something this simple. I won’t get conspiratorial on you and say that they are intentionally obfuscating, so we will just assume that they are fucking idiots. So, these overpaid-underinformed idiots talk about two words (sometimes interchangeably) when they talk about fiscal imbalance; deficit and debt.
A deficit is the amount the government must borrow every year in order to pay for all of its spending programs after all tax money has been exhausted. I am sorry if you feel like a third grader when I am writing this, but if you get your news from the mainstream media (or if you are in the mainstream media) I feel like the definition of terms is necessary. It isn’t your fault, you are probably not stupid. You are just being informed about issues by fucking idiots.
Where was I? Oh yeah, debt. The debt is the total amount that the US government owes investors for all of the deficits it has ever run. You may remember the famous debt clock located near Time Square in NYC that is occasionally mentioned in the media.
If the numbers in the picture at the top seem really big to you don’t worry, they are terribly outdated and much larger than that now. As of 7/20/2009 the US government owes $11.35 trillion ($11,350,000,000,000). It is estimated that the interest cost on the debt for 2009 will be around $500 billion. That means that the government will either need to tax or borrow $500 billion more than it otherwise would just to stay current with its creditors. To add some perspective on that number, that is more than the US government spends on the wars in Afghanistan and Iraq ($136 billion) and federal health care programs ($353 billion) combined!
There are many economists and government bureaucrats that will say that although this debt is large, it isn’t too big in relation to the US economy’s gross domestic product (GDP) – the sum total of all economic activity in the country. Left leaning economists will justify budget deficits during tough economic times because government spending can spur economic growth. What they do not mention is the other side of this Keynsian argument, once the economy recovers the government should cut spending and raise taxes to pay back the debt.
Before I go on further, I would like to mention that the debt or deficit spending is not a problem of democrats or republicans. Both parties are good at two things, blaming the other party for deficit spending and voting for huge spending increases whenever it is beneficial to their political aspirations. It seems to particularly be the case when one party controls both the executive and legislative branches (as the democrats do now and the republicans did for a good chunk of time under Bush). Conversely, while Clinton was president and the republicans ran congress (most of the time), the total debt increased by only (ha ha ha) around $1 trillion in 8 years. In Bush’s 8 years the debt increased by about $5 trillion and in the first few months of Obama’s presidency the debt has increased more than $1 trillion. I had mentioned in an earlier post just in passing that it took Bush 8 years to double the debt and I think that Obama may be able to do it in 4. The way he is going he may be able to do even more than double it in his first term.
Perhaps the most interesting thing about the debt, and about deficit spending, is that it is seldom discussed in a manner that clearly explains the issue by politicians. I am not sure why this is, partially because they are successful politicians and are therefore adept at manipulating information to their benefit – while avoiding subjects that don’t have much of an upside. I can’t imagine how a politician could explain to a constituency that the government dumps hundreds billions of dollars every year with no return and no end in sight in a way that would be useful to said politician in any way. Maybe we should start calling the interest payments bailouts and that will get people’s attention. I don’t know how people will pay attention to it, but it is certainly the most effective fleecing of the government. It is also not very sexy as far as the people running the news cycle are concerned.
Hopefully more people like me that are writing about this will get people to pay attention.
The Greenspan Commission Trap
Greenspan the monkey
In 1981, President Reagan established a commission to review the fiscal soundness of social security. The chairman of the commission was Alan Greenspan, who went on to head the Federal Reserve and lay the groundwork for the policies that wrecked the domestic economy. Not surprisingly, the commission determined “that there is a financing problem for… the short run, 1983-89″ (as measured using pessimistic economic assumptions) source. Ostensibly to solve the financing problem they encountered, the commission recommended increasing the Federal Insurance Contribution Act (FICA) tax rates to end the forecasted shortfalls and create a surplus trust fund to help defray future shortfalls in the Social Security program.
Translation – The commission told the government to raise Social Security taxes to protect against the potential short-term financing problem, and to create a trust fund for the revenue that was not immediately paid out in benefits. The trust fund would consist of treasury bills issued by the Treasury Department so that the excess revenues of the tax hike could be used to cover part of the annual budget deficit. This trust fund today holds approximately $2.3 trillion at the end of FY 2009 (monthly reports can be found here). Of that $2.3 trillion, it is unclear exactly how much of that is money that was collected from FICA tax and how much is accumulated interest on the principal. As an example of this, in fiscal year 2009, the trust fund made about $100 billion in interest from the Federal Government while surplus FICA taxes were over $141.9 billion.
On its surface this seems like a good idea. Put some money away for a rainy day sometime down the road to assure old people don’t spend their golden years eating dog food in a cardboard box. But, this isn’t a savings plan at all. It more accurately represents the money that the federal government stole from you and your employer under the guise of stabilizing the Social Security system.
If that seems like a strong statement, good. When looking at the aftermath of the Greenspan Commission’s recommendations, you have to put their recommendations into the proper context. In 1981, when the commission was conceived, Reagan had just become president and wanted to lower the Income tax rate for America’s highest wage earners. There were also reports of a funding shortage in the social security fund which needed to be addressed. He knew that in order to accomplish his desired tax cuts for the rich, since he was supposed to be a fiscal conservative, he would have to make up for the tax cut somehow. He also had huge spending plans that he needed to fund and spending on other programs couldn’t really be cut to the necessary extent. To prevent an increase in the public debt that would draw the ire of many of his supporters, Reagan followed the recommendation for the creation of a trust fund along with Congress. And for the rest of the 80’s and 90’s they cleaned up. Deficits grew which increased the overall debt, but more and more of the debt was being covered by the surpluses in FICA taxes (a similar scam is underway with the Medicare payroll tax as well) so the publicly-held debt didn’t grow as quickly.
I know, I am jumping to a huge conclusion about the people that crafted this policy but there are only two possible scenarios; this is more or less how Reagan, Greenspan and Co. planned it or, they are total idiots. I do not agree with much about the politicians and economists involved in this scheme, but I don’t think they are stupid. It seems obvious to me that the plan from the Greenspan commission accomplished two goals in one fell swoop, they shifted a big tax burden from the rich to wage earners while simultaneously hamstringing a major progressive policy for the future (in case you don’t realize it, the right wing hates Social Security).
Now if you go out in search of material to debunk my little theory, you may run across the old doosy that right wingers love to throw out – lowering top bracket tax rates actually increases tax revenue. Suuuuure. They will point to periods in history that followed rate cuts when revenue from the rich actually went up and assume (with purposeful ignorance) that the tax rates were the only thing holding rich people back from going out there and making more money. While it is true that high taxes are a disincentive, the main times that rich people make money is when the economy is growing. And in case you didn’t know, government policy (particularly under Republican leadership) has only as small role in the overall health of the economy.
Let me get back to that figure I mentioned earlier $2.3 trillion. That is how much money the government now owes itself. It is a real debt in that the government does pay interest on the debt, as I mentioned earlier, the interest cost for fiscal year 2009 was about $100 billion and that money does come out of the general budget. It is not a real debt though because the interest payments on the treasury notes are made with more treasury notes, which don’t hold a real value on the open market, unlike the cash payments made on interest held by the public.
That $2.3 trillion in the Social Security trust fund account for more than half of the total $4.3 trillion in government held debt. The remainder of the $4.3 trillion includes Medicare, Railroad retirement and the environmental superfund, to name a few. You can find reports on all of the individual intragovernmental holdings here.
In the future, I expect the true intent of the Greenspan Commission’s recommendations to be accepted as I have outlined them above. The government simply cannot maintain the huge burden of this debt over the long haul.
In 1981, President Reagan established a commission to review the fiscal soundness of social security. The chairman of the commission was Alan Greenspan, who went on to head the Federal Reserve and lay the groundwork for the policies that wrecked the domestic economy. Not surprisingly, the commission determined “that there is a financing problem for… the short run, 1983-89″ (as measured using pessimistic economic assumptions) source. Ostensibly to solve the financing problem they encountered, the commission recommended increasing the Federal Insurance Contribution Act (FICA) tax rates to end the forecasted shortfalls and create a surplus trust fund to help defray future shortfalls in the Social Security program.
Translation – The commission told the government to raise Social Security taxes to protect against the potential short-term financing problem, and to create a trust fund for the revenue that was not immediately paid out in benefits. The trust fund would consist of treasury bills issued by the Treasury Department so that the excess revenues of the tax hike could be used to cover part of the annual budget deficit. This trust fund today holds approximately $2.3 trillion at the end of FY 2009 (monthly reports can be found here). Of that $2.3 trillion, it is unclear exactly how much of that is money that was collected from FICA tax and how much is accumulated interest on the principal. As an example of this, in fiscal year 2009, the trust fund made about $100 billion in interest from the Federal Government while surplus FICA taxes were over $141.9 billion.
On its surface this seems like a good idea. Put some money away for a rainy day sometime down the road to assure old people don’t spend their golden years eating dog food in a cardboard box. But, this isn’t a savings plan at all. It more accurately represents the money that the federal government stole from you and your employer under the guise of stabilizing the Social Security system.
If that seems like a strong statement, good. When looking at the aftermath of the Greenspan Commission’s recommendations, you have to put their recommendations into the proper context. In 1981, when the commission was conceived, Reagan had just become president and wanted to lower the Income tax rate for America’s highest wage earners. There were also reports of a funding shortage in the social security fund which needed to be addressed. He knew that in order to accomplish his desired tax cuts for the rich, since he was supposed to be a fiscal conservative, he would have to make up for the tax cut somehow. He also had huge spending plans that he needed to fund and spending on other programs couldn’t really be cut to the necessary extent. To prevent an increase in the public debt that would draw the ire of many of his supporters, Reagan followed the recommendation for the creation of a trust fund along with Congress. And for the rest of the 80’s and 90’s they cleaned up. Deficits grew which increased the overall debt, but more and more of the debt was being covered by the surpluses in FICA taxes (a similar scam is underway with the Medicare payroll tax as well) so the publicly-held debt didn’t grow as quickly.
I know, I am jumping to a huge conclusion about the people that crafted this policy but there are only two possible scenarios; this is more or less how Reagan, Greenspan and Co. planned it or, they are total idiots. I do not agree with much about the politicians and economists involved in this scheme, but I don’t think they are stupid. It seems obvious to me that the plan from the Greenspan commission accomplished two goals in one fell swoop, they shifted a big tax burden from the rich to wage earners while simultaneously hamstringing a major progressive policy for the future (in case you don’t realize it, the right wing hates Social Security).
Now if you go out in search of material to debunk my little theory, you may run across the old doosy that right wingers love to throw out – lowering top bracket tax rates actually increases tax revenue. Suuuuure. They will point to periods in history that followed rate cuts when revenue from the rich actually went up and assume (with purposeful ignorance) that the tax rates were the only thing holding rich people back from going out there and making more money. While it is true that high taxes are a disincentive, the main times that rich people make money is when the economy is growing. And in case you didn’t know, government policy (particularly under Republican leadership) has only as small role in the overall health of the economy.
Let me get back to that figure I mentioned earlier $2.3 trillion. That is how much money the government now owes itself. It is a real debt in that the government does pay interest on the debt, as I mentioned earlier, the interest cost for fiscal year 2009 was about $100 billion and that money does come out of the general budget. It is not a real debt though because the interest payments on the treasury notes are made with more treasury notes, which don’t hold a real value on the open market, unlike the cash payments made on interest held by the public.
That $2.3 trillion in the Social Security trust fund account for more than half of the total $4.3 trillion in government held debt. The remainder of the $4.3 trillion includes Medicare, Railroad retirement and the environmental superfund, to name a few. You can find reports on all of the individual intragovernmental holdings here.
In the future, I expect the true intent of the Greenspan Commission’s recommendations to be accepted as I have outlined them above. The government simply cannot maintain the huge burden of this debt over the long haul.
doom letter #23
I have just read two posts(?) on the Huffington Post – bleh. But I tend to pick the low-hanging fruit in my pursuit for news these days, and I am just looking for something to link to so that you don’t think I am making this up. The first story is about Obama opening coastlines up to oil exploration. The second story is about how Obama has hiked vehicle fuel efficiency standards. You can read liberal or conservative takes on either move, or you can consume conspiracies about how they work together just about anywhere online. But, what you will not find anywhere but here is my take on this, not because no one else would publish my writing but because I am so awesome I only want to self-publish my insights on a blog that next to no one reads. It is absolute genius if you take my word for it and don’t think about it…
After first encountering both of these stories, I started thinking about what they mean politically. How can there still be any real progressive support for Obama? He made health care a priority and now that he did something with that he is on to other priorities. See how I didn’t get into my opinion on health care right there? That wasn’t easy. But here is a president that rode a wave of popularity into a job at one of the most difficult moments in the history of the presidency. If Obama finishes two terms, I have no doubt that by the end of it Americans will recognize that their standard of living peaked and is in decline. Unfortunately for Obama, he will likely get blamed for it and it is not his fault. There is simply too much shit coming in his direction to overcome given the weakness of his political support within his party – which is justified.
Politically, these decisions will alienate any environmentalist support he had left after going nuclear a couple of months ago. I don’t know how any honest environmentalist can see an ally in this president. If the argument is only “at least he is better than” some alternative, then they are not honest. But this may make him look more reasonable to average dumb-fuck Americans. The question that remains politically is will he be able to win over enough dumb fucks to keep his job for another 8 years? I have no idea because I thought America was way too racist to nominate and elect him in the first place.
With the political part of my brain satisfied, I now wonder how these decisions impact medium/long term energy policies for the country. As a peak oil theorist, I am not crazy about immediately exploiting oil reserves offshore simply to prop up America’s way of life for a very short period. Oil is so under-valued economically and strategically though that it does not surprise me. There are high level members of Obama’s administration that are aware of the ramifications of peak oil, so I am sure he has been advised about peak oil. But he is going about this all wrong because he needs to let America know explicitly that the country’s economy is in permanent decline and we need to retool ourselves in order to even have a hope of surviving the big market squeeze that peak oil will inevitably create with anything resembling our modern culture. We are the problem. We are the consumers of way too much. More than our share, and it is now obvious more than we can actually afford.
The moves still deserve some recognition, even if they are misguided and insufficient in the face of the problem. And it is for this reason that I wonder whether Obama is just another full-o-shit politician that will say what he thinks it takes to get voted in all the while winking knowingly to his corporate sponsors or if he is at least somewhat genuine in his political beliefs but is stuck trying to make people happy that put the scratch together for his campaign? I think he is a sell out, I don’t trust anyone who accepts the sort of nonsense that he has accepted personally and professionally. But I am willing to entertain the idea that he is a pragmatic man trying to figure out how to lead a citizenry with overinflated senses of self-worth.
Time will tell, but at least from a peak oil point of view, something is happening here and now other than business as usual.
boat drinks,
mike mayberry
After first encountering both of these stories, I started thinking about what they mean politically. How can there still be any real progressive support for Obama? He made health care a priority and now that he did something with that he is on to other priorities. See how I didn’t get into my opinion on health care right there? That wasn’t easy. But here is a president that rode a wave of popularity into a job at one of the most difficult moments in the history of the presidency. If Obama finishes two terms, I have no doubt that by the end of it Americans will recognize that their standard of living peaked and is in decline. Unfortunately for Obama, he will likely get blamed for it and it is not his fault. There is simply too much shit coming in his direction to overcome given the weakness of his political support within his party – which is justified.
Politically, these decisions will alienate any environmentalist support he had left after going nuclear a couple of months ago. I don’t know how any honest environmentalist can see an ally in this president. If the argument is only “at least he is better than” some alternative, then they are not honest. But this may make him look more reasonable to average dumb-fuck Americans. The question that remains politically is will he be able to win over enough dumb fucks to keep his job for another 8 years? I have no idea because I thought America was way too racist to nominate and elect him in the first place.
With the political part of my brain satisfied, I now wonder how these decisions impact medium/long term energy policies for the country. As a peak oil theorist, I am not crazy about immediately exploiting oil reserves offshore simply to prop up America’s way of life for a very short period. Oil is so under-valued economically and strategically though that it does not surprise me. There are high level members of Obama’s administration that are aware of the ramifications of peak oil, so I am sure he has been advised about peak oil. But he is going about this all wrong because he needs to let America know explicitly that the country’s economy is in permanent decline and we need to retool ourselves in order to even have a hope of surviving the big market squeeze that peak oil will inevitably create with anything resembling our modern culture. We are the problem. We are the consumers of way too much. More than our share, and it is now obvious more than we can actually afford.
The moves still deserve some recognition, even if they are misguided and insufficient in the face of the problem. And it is for this reason that I wonder whether Obama is just another full-o-shit politician that will say what he thinks it takes to get voted in all the while winking knowingly to his corporate sponsors or if he is at least somewhat genuine in his political beliefs but is stuck trying to make people happy that put the scratch together for his campaign? I think he is a sell out, I don’t trust anyone who accepts the sort of nonsense that he has accepted personally and professionally. But I am willing to entertain the idea that he is a pragmatic man trying to figure out how to lead a citizenry with overinflated senses of self-worth.
Time will tell, but at least from a peak oil point of view, something is happening here and now other than business as usual.
boat drinks,
mike mayberry
doom letter #22
Dear Well-to-do Baby Boomers,
I saw you at the Tea Party Convention in Nashville and you are a sad bunch of people. Your convention reminded me of an AARP meeting for only racist members. It is unfortunate that this is the best top-down “movement” that dethroned conservatives can muster. I understand that you dislike the president, I do too. I just wish that you wouldn’t cloak your shit in so much nonsensical patriotism. If you want a revolution, as some at the convention stated, then I am with you. Unless you mean a revolution like 1994, which was not a revolution at all even though the thought of it gives you all boners.
So, aside from the fact that the vast majority of the convention was just a money-making scheme for the promoters and vendors, I was depressed to see that your key-note speaker was Sarah Palin and the next name that got big press was Tom Tancredo. Are you fucking for real? The crazy dude from the 08 presidential primaries and the publiciteer from Wasilla? Why not just hire me to come up on stage and take a crap while reading from their books. It would have been way cheaper, and you would have got the same inspirational message. Also, I could have taken a crap. Aside from the demographics, this was the icing on the cake for me. You are clearly not serious about changing anything in this country other than the puppet that sits on the throne.
I want you to realize that this country is totally fucked, but not because of the socialist president – about as socialist as one can be while bowing to his corporate masters and propping up a dead economy for the betterment of Wall Street bankers. Don’t you understand anything at all? He re-appointed your Fed chairman, escalated one of your wars and cut your taxes. Yeah, he’s a real socialist mad man. The solution to the whole mess isn’t to put a dimwit like Sarah Palin into the White House. The real solution is to blow up the White House and start from scratch.
But I understand you don’t really give a shit about the future of this country, and I don’t blame you. You give a shit about your own interests, which are vested in the stability of the status quo, with a slightly more reddish hue.
My closing advice to you is to either kill yourselves immediately, hopefully taking a few other tea partisans with you in the process, or to wake the fuck up. We have an empire to dismantle and an economy to reformat and there is not an abundance of time or materials available to make it happen. The longer you spend thinking about your retirement plans, the shorter our window of opportunity gets. So lets get serious, stop jerking each other off and start working on a future that has some hope of survival before it is too late.
Get on board for the boat drinks or get the fuck off of the earth,
mike
I saw you at the Tea Party Convention in Nashville and you are a sad bunch of people. Your convention reminded me of an AARP meeting for only racist members. It is unfortunate that this is the best top-down “movement” that dethroned conservatives can muster. I understand that you dislike the president, I do too. I just wish that you wouldn’t cloak your shit in so much nonsensical patriotism. If you want a revolution, as some at the convention stated, then I am with you. Unless you mean a revolution like 1994, which was not a revolution at all even though the thought of it gives you all boners.
So, aside from the fact that the vast majority of the convention was just a money-making scheme for the promoters and vendors, I was depressed to see that your key-note speaker was Sarah Palin and the next name that got big press was Tom Tancredo. Are you fucking for real? The crazy dude from the 08 presidential primaries and the publiciteer from Wasilla? Why not just hire me to come up on stage and take a crap while reading from their books. It would have been way cheaper, and you would have got the same inspirational message. Also, I could have taken a crap. Aside from the demographics, this was the icing on the cake for me. You are clearly not serious about changing anything in this country other than the puppet that sits on the throne.
I want you to realize that this country is totally fucked, but not because of the socialist president – about as socialist as one can be while bowing to his corporate masters and propping up a dead economy for the betterment of Wall Street bankers. Don’t you understand anything at all? He re-appointed your Fed chairman, escalated one of your wars and cut your taxes. Yeah, he’s a real socialist mad man. The solution to the whole mess isn’t to put a dimwit like Sarah Palin into the White House. The real solution is to blow up the White House and start from scratch.
But I understand you don’t really give a shit about the future of this country, and I don’t blame you. You give a shit about your own interests, which are vested in the stability of the status quo, with a slightly more reddish hue.
My closing advice to you is to either kill yourselves immediately, hopefully taking a few other tea partisans with you in the process, or to wake the fuck up. We have an empire to dismantle and an economy to reformat and there is not an abundance of time or materials available to make it happen. The longer you spend thinking about your retirement plans, the shorter our window of opportunity gets. So lets get serious, stop jerking each other off and start working on a future that has some hope of survival before it is too late.
Get on board for the boat drinks or get the fuck off of the earth,
mike
doom letter #21
It was recently brought to the periphery of my consciousness that some old fuck named Pat Robertson said some shit about the earthquake in Haiti. That is the extent of my knowledge, and I refuse to investigate further because doing so would be a bigger waste of time and probably less funny that reading tweets from ShitMyDadSays – which is a waste of time in and of itself.
There are plenty of people to hate in this world that are still relevant and actually pose a threat to mainstream American culture (search for my opinions under Fuck Glenn Beck and Fuck Rachel Maddow, amongst many others) so why was good art, words, social capital or breath spreading the word about some washed-up televangelist that said something predictably televangelist-y. Stop wasting good angst on bad targets. Break your mainstream liberal programming and think for your fucking selves, fine people of the left of center. This guy has no cache with anyone under the age of 75 anymore and hasn’t for at least a decade. Give a shit about someone or something topical, and pollute my web reading with that stuff instead of some criticism that just as easily could have been voiced in 1987.
I am not even telling you what to right about, I am just asking politely not to waste another word on something so silly and antequated as a religious TV personality from the 1970’s.
This may be among the shortest doom letters of all time, but sometimes saying something important only takes a couple hundred words. And in a society that is quickly becoming used to messages with fewer characters than that, perhaps I should count my blessings of consision.
brevity drinks,
mike
There are plenty of people to hate in this world that are still relevant and actually pose a threat to mainstream American culture (search for my opinions under Fuck Glenn Beck and Fuck Rachel Maddow, amongst many others) so why was good art, words, social capital or breath spreading the word about some washed-up televangelist that said something predictably televangelist-y. Stop wasting good angst on bad targets. Break your mainstream liberal programming and think for your fucking selves, fine people of the left of center. This guy has no cache with anyone under the age of 75 anymore and hasn’t for at least a decade. Give a shit about someone or something topical, and pollute my web reading with that stuff instead of some criticism that just as easily could have been voiced in 1987.
I am not even telling you what to right about, I am just asking politely not to waste another word on something so silly and antequated as a religious TV personality from the 1970’s.
This may be among the shortest doom letters of all time, but sometimes saying something important only takes a couple hundred words. And in a society that is quickly becoming used to messages with fewer characters than that, perhaps I should count my blessings of consision.
brevity drinks,
mike
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