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While in San Diego last week, my financial planner gave me a series of articles to read, one of which I think may have some intellectual value to those of us that have contributed to this particular post. It is available via the New York Times internet site. The article was written by David Stockman, former budget chief during some (1981-1985) of the Reagan years. Pretty interesting reading.
Lookup tag: David Stockman
Article: Sundown in America
Header: State-Wrecked: The Corruption of Capitalism in AmericaVery interesting reading and Stockman unloads with his opinion, giving due discredit to both political parties. I am offering this up for the reading pleasure of all without personal comments on my part.
And if you go to
and search on “krugman stockman”
you’ll find a series of columns and blogs by the Nobelist which pretty thoroughly discredits Stockman’s work.
[quote=”sweikert925″][quote=”imxploring”]…where does the money (be it electronic in nature and magically transferred with the push of a button)come from that the federal reserve uses to purchase bonds and thus “inject” liquidity (M1) into the economy?[/quote]
Where does money come from? Well let me put it this way. I receive a shiny brand new credit card in the mail from JPMorganChase with a $10,000 credit limit. Holding that credit card in my hot little hand, I trot over to Best Buy and purchase a new LCD 46″ TV which costs $1,000.00. Now Best Buy has $1,000.000 – actual money – which they can use to restock their merchandise, pay their staff, etc., etc. So where did that $1,000.00 come from? Did I “print money” as the Fed is often accused of doing?
[quote=”imxploring”]…not open market treasury bills as you previously stated, but special issue securities that are issued at face value, redeemable at any time, and unique to the trust fund.[/quote]
I stand corrected, but I’m not sure why you consider this special class of bonds so drastically different than the ordinary treasury bonds offered to the general public.
[quote=”imxploring”]Yes my friend…. sounds a lot like an IOU! [/quote]
When I buy a house and take out a mortgage loan, that’s an IOU. When I buy something using a credit card, that’s an IOU. When you order raw materials for your manufacturing business for which you will later get a bill, that’s an IOU. If I work at my employer over the next 2 weeks, there is an implict IOU that they will deposit money in my checking account a week from Friday. When I write a check to pay my condo assessment, that’s an IOU. EVERY SINGLE TRANSACTION in our modern economies is based on implicit trust that the seller will be paid eventually, which means there are trillions of IOUs floating around out there. Why some people are so aghast that the Social Security system uses that aspect of economic activity is something I find extremely odd. The whole point of money is nothing but a formalized way of keep track of IOUs. Money itself has no intrinisic value.
[quote=”imxploring”]There will come a time in the near future when then promise is nothing more that what it sounds like, a promise.[/quote]
There won’t “come a time” because that time is now. All economic transactions are based on promises.[/quote]
There won’t “come a time” because that time is now. All economic transactions are based on promises.[/quote]
And the PROMISE that was made to all of us forced into Social Security is once again being broken isn’t it with the newest “change” (reduction in promised benefits) with the introduction of chained CPI. As if the current method of calculating CPI isn’t a joke!
Other promises that were broken.
Up to 85% of your social security can be taxed (hence a reduction of your net social security earnings in retirement) if you were a good steward of your life and took personal responsibility for your future and saved and invested.
An ever increasing full retirement age which further reduces your benefit if you take your social security at the age prior retirees did.
So what promise is next to be broken?
I’ll stand by my statements that social security is now a month to month general obligation of Uncle Sam and that he’s broke. You’ve pointed out that he has 3 trillion dollars coming in annually….. that sounds get if it weren’t for the fact that he has 100’s of BILLIONS more than what’s coming in going out! He’s running in the red big time. He also owes about $15 trillion in acknowledged public debt. Add to that the amounts he owes Social Security, Medicare, and other programs that are unfunded but promised and his real debt is closer to $100 TRILLION dollars.
When normal folks like us go to buy a house or apply for a credit card, as you’re pointed out, we make a promise to pay. However, before the bank issues that mortgage or puts your name on that credit card they look at your credit history and your ABILITY TO REPAY the loan. While Uncle Sam may have enjoyed a nice credit history all these years I really don’t think you can make an argument that he has the ability to repay all that is owed.
Much like a person that gets into financial trouble and is bouncing credit card balances from card to card… or using credit to live day to day and is kicking the can (repayment) down the road. Uncle Sam has mastered that act. But at some point it’s time to pay. Unfortunately I think the music has stopped that time is going to occur during our lifetime.
Be prepared!
[quote=”DavidCMurray”]And if you go to
and search on “krugman stockman”
you’ll find a series of columns and blogs by the Nobelist which pretty thoroughly discredits Stockman’s work.
[/quote]And while you’re at it look up http://en.wikipedia.org/wiki/Ant%C3%B3nio_Egas_Moniz
Another Nobelist that the future wasn’t kind to.
Krugman seems to think that that debt isn’t a problem. But what he fails to see is that credit is! When the world’s confidence in the US gets hammered and the extenders of our credit (buyers of our bonds) lose their appetite for our paper our credit dries up.
The Chinese and the Middle East know full well where this is headed.
[quote=”imxploring”] When the world’s confidence in the US gets hammered and the extenders of our credit (buyers of our bonds) lose their appetite for our paper our credit dries up.
[/quote]The foregoing sounds like something that has happened before. Can you elaborate? When did this happen in the past? Or is this mere conjecture? There is a rich literature about the coming disaster, but none of it has actually happened yet. Or has it? Doomsday scenarios abound.
If investors are buying Greek securities, what makes you think they won’t buy American?
[quote=”sweikert925″][quote=”imxploring”] And the PROMISE that was made to all of us forced into Social Security is once again being broken isn’t it with the newest “change” (reduction in promised benefits) with the introduction of chained CPI. As if the current method of calculating CPI isn’t a joke![/quote]
>Social Security makes NO promise other than to pay you an amount based on certain projections of your contributions. You don’t seem to be aware that until 1972 there WAS NO COLA for Social Security benefits. Since 1972 the law says that adjustments would be based on a specific calculation of inflation – but if that method is changed (as is the current proposal) SS has not reneged on that promise. The estimate of inflation is just that, an estimate. There is a plausible case that the estimates up to now are not correct. That is debatable, but there are valid arguments on both sides of that debate.<
[b]Changes are fine. But the changes being made have more to do with the inability of SS to make promised payments because of the way the program has been run, not with changing demographics.[/b]
[quote=”imxploring”]
Up to 85% of your social security can be taxed (hence a reduction of your net social security earnings in retirement) [/quote]>All retirement income is subject to tax. SS benefits are in fact taxed at a lower rate than other retirement income. Why do you think it should be tax exempt?<
[b]Not ALL retirement income is taxed, SS are not for those earning below a threshold of other income in retirement. So those that worked, saved, and lived below their means (and in many cases paid more then the average into SS) are now taxed on their benefit thus resulting in a lower net return from social security because they have other self funded retirement income? Does that seem fair? No wonder folks would rather jump on the dole and let Uncle Sam pay their way! When you PUNISH (YES PUNISH) folks for being productive, fruitful, prudent, wise, and diligent in taking personal responsibility for their furture you discourge personal responsibility. Care to discuss the recent explosion in folks jumping on SSDI? You can’t really support that all these folks are truly disabled now can you? [/b][b][/b]
[quote=”imxploring”]An ever increasing full retirement age which further reduces your benefit if you take your social security at the age prior retirees did.[/quote]
>The retirement age has only been increased once, in 1983 (hardly “ever increasing”). It may be changed again but when SS was first designed in the 1930s the retirement age was set at 65 – but life expectancy then was only 58 for men and 62 for women. As of 2010 life expectancy is 76 for men and 81 for women. You don’t think the system needs to be adjusted to take that into account?<
[b]Brought to you by the same folks BEGGING you not to take you SS at 62! Seems every week there’s an article on line telling you to wait. But the majority still take their SS at 62 with the reduced benefit (a 30% reduction if I’m not mistaken) and yet the fund still has to make adjustments to the full retirement age? Why is that if a good portion (the number escapes me but I believe more than half) of folks are taking SS “early” and taking a 30% on their payout that the retirement age needs to be adjusted at all? Or for that matter why is there a need for the new Chained CPI proposal? Lave that proposal by the way… beef gets too expensive you’ll switch to a cheaper product. I guess the end game there is when eating gets to expensive at all people will just stop eating all together and the situation with SS will resolve itself! LOL[/b][b][/b]
[quote=”imxploring”]You’ve pointed out that he has 3 trillion dollars coming in annually….. that sounds get if it weren’t for the fact that he has 100’s of BILLIONS more than what’s coming in going out! [/quote]
>People seem to have completely forgotten that as recently as 2001, there was a balanced federal budget – and we even paid down some of the debt for a couple of years. From 1994 to 2006 federal revenue grew by an average of 6%. If federal revenue had grown after 2007 by that same historical percentage, we would have a nearly balanced federal budget today.<
[b]All during one pretend economy after another! One bubble after another. The commodity bubble, the internet bubble, the DOT.Com bubble, and of course the real estate bubble. All pretend money that was taxed and spent fueling an “economy” that wasn’t real. All smoke and mirrors that resulted in big tax revenues for Uncle Sam that he promptly spent. But the party is over now and we’re stuck with a big clean-up! [/b]
>Actual revenue, spending and deficit (all figures in $millions):
2007 2,567,985 2,728,686 -160,701
2008 2,523,991 2,982,544 -458,553
2009 2,104,989 3,517,677 -1,412,688
2010 2,162,724 3,456,213 -1,293,489
2011 2,303,466 3,603,061 -1,299,595
2012 2,468,599 3,795,547 -1,326,948
2013 2,901,956 3,803,364 -901,408Projected revenue, spending and deficit:
2007 2,551,281 2,728,686 -177,405
2008 2,704,358 2,982,544 -278,186
2009 2,866,619 3,517,677 -651,058
2010 3,038,617 3,456,213 -417,596
2011 3,220,934 3,603,061 -382,127
2012 3,414,190 3,795,547 -381,357
2013 3,619,041 3,803,364 -184,323From 1950-1994 federal revenue grew even faster – by 8.4%, but that included some periods of high inflation in the 70s and 80s so it shouldn’t be used for comparison.
source: http://www.whitehouse.gov/omb/budget/Historicals (Table 1.1)[/quote]<
[b]Nice numbers (numbers always seem to blind people) but what I believe you left out are the numbers (DEBT/MONEY) Uncle Sam owes to both Social Security and Medicare. Correct me if I’m mistaken of course. That is unless you don’t believe that money that Uncle Sam took (we’ll call it borrowed) from the American public should be included in his balance sheet! After all with all the fighting over the national debt ceiling being increased from $16 trillion everyone seems to ignore that what Uncle Sam has taken and owes to the citizens of this country (not banks or foreign governments)is MUCH bigger than what is currently acknowledged as the “National Debt”! [/b]
[quote=”DavidCMurray”]And if you go to
and search on “krugman stockman”
you’ll find a series of columns and blogs by the Nobelist which pretty thoroughly discredits Stockman’s work.
[/quote]While you’re at it check on this fellow Nobelist that was proven quite wrong by the furture. Not all winners have been prove right by there theories and predictions.
http://en.wikipedia.org/wiki/Ant%C3%B3nio_Egas_Moniz
Krugman sees no problem with debt. But the real problem starts when credit becomes an issue. Something he seems to ignore.
The future is the only judge of those who try to foresee it~!
[quote=”sweikert925″][quote=”imxploring”]
Brought to you by the same folks BEGGING you not to take you SS at 62! Seems every week there’s an article on line telling you to wait. [/quote]If that’s meant to suggest the the SS Administration is urging folks [b]NOT[/b] to retire at 62, that’s not true. The SSA takes no position on when anyone should retire. But those who do retire early actually lose out on average.
Let me illustrate with my own situation. I plan on applying for benefits at 62. According to the most recent benefit estimate statement, I will get $1595 per month then. If I wait to age 66.5, I will get $2260. There is a website that crunches the numbers for you to determine what age threshhold you have to reach before you lose out by taking SS early.
https://www.newretirement.com/services/Social_Security_Start_Age_Calculator.aspx
In my case, that comes out to age 79. Now based on my own medical history and my family medical history it seems likely that I won’t live that long, so I have decided to retire at 62. Of course, if I DO live past that age I can kick myself but of course there’s a pretty good consolation prize – I will still be alive.
Note that 79 is older than the current life expectancy for an American male and believe me, that is no accident. The SSA has actuaries who calculate these things with great care. It would therefore be in their interest to urge folks to do the very opposite of what you imply they are doing. In fact it is financial planners who urge folks to delay taking SS benefits as long as possible because they are well aware of the relative costs of taking benefits early.
[quote=”imxploring”]
Why is that if a good portion (the number escapes me but I believe more than half) of folks are taking SS “early” and taking a 30% on their payout that the retirement age needs to be adjusted at all? [/quote]Because even with the facts detailed above there still isn’t enough money to fund all of the projected benefits past 2033. It’s simple arithmetic.
[quote=”imxploring”]You’ve pointed out that he has 3 trillion dollars coming in annually….. that sounds get if it weren’t for the fact that he has 100’s of BILLIONS more than what’s coming in going out! [/quote]
As I mentioned, the budget deficit disappeared in 1999 and if the people who were in charge of things then had stuck to fiscal discipline we wouldn’t be in this mess we are in now. If the budget had grown as I listed above, the national debt would be lower by $4.4 TRILLION!!! Actually, probably even more than that because while I projected revenue higher according to historical trends, I didn’t make any assumptions on spending. But if there had been no great recession there would have been no $800 billion TARP, no $800 billion stimlus, and 8 million more people might be employed and paying taxes rather than collecting unemployment, SS disability, food stamps and other forms of assistance. So figure another $2 trillion less of debt right there.
[quote=”imxploring”]
All during one pretend economy after another! One bubble after another. The commodity bubble, the internet bubble, the DOT.Com bubble, and of course the real estate bubble.[/quote]There was no “internet bubble”. There was a HUGE gain in productivity due to the widespread use of personal computers after 1990, but that was real – not a bubble. The dot.com bubble was purely an artifical increase in technology stocks due to a gold rush mentality of greedy investors for a few years. Once that bubble burst the market settled into a slow but steady increase which reflected real wealth, not the fake kind.
See here, increase timeline to go back to about 1995: http://www.google.com/finance?q=INDEXNASDAQ:.IXIC
The real estate bubble WAS a bubble in the classic sense but that bubble burst and now real estate values have reached more realistic levels.
[quote=”imxploring”]
what I believe you left out are the numbers (DEBT/MONEY) Uncle Sam owes to both Social Security and Medicare. Correct me if I’m mistaken of course. [/quote]Medicare is in big, big trouble – but not due to any flaw in the way it has been administered, unless you count GW Bush’s reckless act of expanding it to include prescription drugs without raising taxes one penny to pay for it. It is due to healthcare cost inflation which affects all healthcare finances, not just Medicare.
SS is [b]NOT[/b] in serious trouble. It can be fixed pretty easily as a link I provided earlier in this thread details.[/quote]
I guess your last sentence is where we have a major disagreement. The “trust” fund does not exist. Uncle Sam and Social Security are one in the same. It’s all coming out of the same budget at this time. Only time will tell how this works out. For now let’s hope people stay informed and make the right moves to secure their financial future should my concerns prove to be the path the future follows.
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