The U.S. Economy: Stand by for more worse news

Ah, no. the "federal accounts" are almost exclusively Social Security and Medicare Trust Fund "debt". It represents 35+ years of excess payroll taxes - taxes in excess of what was needed to fund those programs. Back in the 80's payroll taxes were increase significantly to pay for Baby Boomer retirements or at least that was how the tax increases were sold to wage earners. But instead of saving the excess, the government used the increase payroll taxes to fund tax cuts for the uber wealth. The "federal accounts" as has been explained to on numerous occasions represents 35+ years excess payroll taxes. It isn't debt. It's an expected future expense. It isn't debt.

Well, the Social Security Trust Funds may or not be replenished. The government certainly isn't in anyway obligated to do so, and therefore it isn't debt. Social Security and Medicare taxes are taxes, they are not loans. Therefore, they are not debts. They are accounting transactions. If congress so desired, they could be vacated in an instant with a few keystrokes on a computer with or without an actual exchange of money. I as a Medicare and Social Security tax payer of 40+ some years have no legal claim to any of the hundreds of thousands of taxes I have paid over the years to the federal government - NONE.

What is certain is if the government wants to continue these program into the future, it will need to either reduce benefits or revert to a pre-Reagan tax structure. That isn't Armageddon, though folks like the Koch brothers certainly will not like it. But they have been the beneficiaries of 35+ years of excess payroll taxes. So it's time to normalize the tax structure. It's time to pay the piper. But none of that makes excess Social Security and Medicare taxes debt. I suspect the government will do both. I suspect it will cut benefits and increase taxes.

Excess Social Security and Medicare taxes are better characterized as an expected future expense. And that makes it no different from any other government program. Virtually every government agency has expected future expenses. But we don't call those expected future expenses debt, because they aren't debts. They are expected future expenses. There is a difference BillyT.

 

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On (1): that is technically true but politically false. Congress can legally terminate SS security but none ever will, as the congress men/women are political creatures. Yes in principle but not in practice, Congress could declare the promisses on the SS trust fund bonds - repayment at maturity - are voided.

Many would ask: Why stop with just the bonds in the SS trust fund? Why not make our children debt free - void all 18.1 trillion of US debt, especially as China is the largest holder? That would be the mother of all "re-sets."

On (2) No there is a big diffrence: Only SS holds government issued bonds that must be paid to prevent total collapse of the trust that backs fiat money. If the government defaults on these written "full faith and credit" obligations, then the banking system and much more - the entire economy collapses. We don't call the future expenses of other government agancies "debts" for the simple reason they don't hold "full faith and credit" bonds promissing payment of the principle at maturity.

Governments that don't honor the promisses of their written bonds, are in "Deep Yogurt" - look at Argentina - they only defaulted on one relatively minor series, held mainly by Italians.

 

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It's not only technically true, but absolutely true. Social Security and payroll taxes are not loans and reported US debt is grossly overstated almost by a factor of 2 because it includes "debt" which the government owes to itself. It's an accounting artifact which confuses many people such as yourself. As I have repeatedly pointed out, congress has options to fund Social Security and Medicare. They can return to a pre-Reagan tax rates and they can reduce benefits. They have often talked about increasing the retirement age, and I think that will eventually happen. The US doesn't have a debt crisis.

Except as has been repeatedly explained, the Social Security Trust Fund isn't debt. It measures the value of 35 years of excess Social Security and Medicare taxes. Certainly, the US government could overnight pay off its entire debt by simply creating new money were it not for the fact that US Treasury bills are not callable. Therefore, the US Treasury has no right to prepay its debt or "reset".

I'm not sure what your point is. Certainly, a US government debt default would be catastrophic. But that's not what we are talking about. As previously and repeatedly explained, The Social Security Trust Fund debt isn't debt. It's money the government owes to itself. It's taking money out of one pocket and putting it into another. It's an accounting artifact, nothing more and nothing less. To eliminate the Trust Fund "debt" all that need be done is congressional authorization and then to credit the Social Security Trust Fund and debit the US Treasury General Fund. It's an accounting artifact. If the US government used the same accounting private companies used, this "debt" would never, ever, be reported as debt in its financial reports.

 

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That would mean even the SS trust funds assest (the US Treasaury bond helds in the trust) are voided,* so the payments to those collecting SS would either stop or be made by the Treasury.

I don't think it is politically possible to just stop paying SS benefits, so the Treasury would pay them. - Currently the treasury pays off the maturing bonds held by the SS trust fund and those payments (plus interest paid) cover the excess of the pay-out to people collecting SS benefits over what the current SS tax on worker brings in to SS administration.

* The bonds in the SS trust fund come from an earlier era, when far fewer were collecting benefits and the SS tax on workers more than covered the SS benefits paid out. I. e. the government just took the excess of tax paid in and spent it on wide variety of things, and gave promisses (bonds) that when the curent SS taxes would not cover the SS pay out, the interest on the bonds, plus some redeemption of bonds would cover the difference.

Your suggestion, cancelling the SS trust fund, Breaking the promiss in the bonds of payment upon maturity,** just throws the entire SS benefit pay out directly on the treasury. I don't care whether your call it a "debt" or "internal transfer" - it is money that must be paid out to people collecting SS benefits. I consider it a debt, like all the other bonds the Treasury has issued. You are just playing semantic games when you say it is not a debt that does not need to be paid.

** If US can selectively break bond promisses of repayment, then China et.al. will know that "full faith and credit" is just hollow words - the economic system collapses, at least if the US spends more than it collects and needs to issue bonds with full faith and credit promisses.

 

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The Bernie Sanders and others statement that the middle class has been shrinking for 40 years is and understatement. - For longer than that, the system has been stacked to transfer wealth to the already very wealthy. No wonder the top 1% has more than half of the US wealth now.

It is time for a change. Bernie is the only one who will and can do that.
He and Trump are the only ones not collecting millions from special interest PACs and the very rich.

BTW Never before has the middle class been less than 50% of the US population

later by edit: Bloomberg has same story here: http://www.bloomberg.com/news/artic...-the-u-s-middle-class-has-changed-in-45-years with this graphic:

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No, it simply means the US government decides what, if and how it will fund Social Security programs and that has always been the case. Yes, the US government could decide to eliminate Social Security. That's why Social Security "debt" isn't debt, it's inter-agency debt. It's debt the government owes to itself. The Social Security Trust fund are taxes collected in excess of program expenses, nothing more, nothing less. And they certainly aren't debt in the traditional sense. As I have repeatedly told you over the years, if the US government used the same accounting methods employed by private industry, US government inter-agency debt would not be reported as debt.

What you are doing and what those like you have done, is analogous to taking the future spending of any government agency and calling it debt. Because as has been explained ad nauseam, the Social Security Trust fund represents excess Social Security taxes which have been paid to the US Treasury for more than 3 decades. Those excess taxes were used to fund tax cuts for America's wealthiest citizens.

Well, it's probably not politically possible to stop paying for the US military either. That doesn't make US military spending or future US military spending debt. The US government can decide when and how or even if it will fund Social Security and the US government has many options available to fund Social Security. For starters, it can make the tax code more equitable. It can make all all income subject to Social Security taxes. It can revert to the Reagan era tax rates or pre-Reagan era tax rates and it can cut benefits or any combination thereof. But that doesn't make Social Security Trust Funds debt.

Well while it is true the Social Security Trust fund comes from an earlier era. It was created with the Social Security program. But that has nothing to do with actuarial data. Back in the 80's during the Reagan administration, Social Security taxes were raised in anticipation of Baby Boomer retirements. Those increased taxes on wage earners were then transferred to America's wealthiest citizens via significantly lowered income taxes. Now that Baby Boomers are retiring, the US government will need to do one of two things. It will need to cut Social Security benefits or to revert back to the pre-Reagan era income tax rates or some combination thereof. But again, that doesn't make Social Security Trust fund "debt" debt in the normal sense of the word, in the sense you and those like you are using it.

Except, the US is not nor would it be selectively breaking bond promises, nor would modifying the Social Security program constitute the breaking a bond. Additionally, the type of "bond" held by the Social Security Trust funds isn't even remotely similar to the US Treasury bonds held by the public, and that includes China. It's a special kind of "bond", a "special purpose bond", which is issued to denote inter-agency debt. It isn't sold to the public. It isn't auctioned. It's an accounting entry. It isn't even remotely similar to a US Treasury Bond which is sold to the public, the kind China and others own. So to equate the two as you have done, is just flat out wrong. I don't think any holder of US Treasury bonds is going to suffer any angst if the US government decides to break a promise to pay a debt it owes to itself. I think most investors can understand the difference between an accounting artifact and substance.

Further, I didn't suggest voiding the Social Security Trust Fund. I said it could easily be done. The reason the fund was created was to give Americans a false sense of ownership in order gain public acceptance and to ensure the success of the program. It's value is more political than financial. But that doesn't make excess Social Security taxes (i.e. The Social Security Trust Fund) debt. The US Social Security Trust fund is simply excess payroll taxes collected over the course of more than 30 years in anticipation of future program spending and taxes are not debt. They are just excess taxes. What you are doing and what others like you have done is to represent excess taxes as debt and that is very clearly wrong.

 

Yes the America middle class is in distress. But I don't think Bernie or Trump are the answer. Bernie is certainly closer than Mr. Trump. In order to permanently solve the problem, we need to take special interest money out of our political system and we need a better informed electorate. We need significant ethics reforms and campaign finance reforms embedded into the Constitution and the tax code needs more equity. And we need a better informed electorate, that means restoring the Fairness Doctrine. Democrats represent the best hope of the American middle class and history has shown the economy does better under Democratic administrations.

 

Bernie's been straightforward about these serious issues for as long as I can remember. I don't think anybody will be able to get anything done until we resolve this serious [seditionist] threart from the intellectually deficient wing of the US house. It's amazing how the conversation revolves around stuff that is illegal and unconstitutional rather than stuff that would improve the electorates lives. It shocked me when I saw today's daily political poll that predicts even 11% of post graduate students support Trumps Muslim dogma. How much education do you need to know when something is absolutely unconstitutional? Duh.

 

We agree on fact for decades SS taxes exceeded SS pay outs, and that this excess was used by the government to pay for other things, just as other treasury issued bonds are and have been. In fact the Treasure did issue bonds promissing to pay back to SS with interest the money it took from SS during the earily years with an excess of SS taxes. True these bond are just held by SS and do not trade on the bond market, but many bonds, for eample US "saving bonds" do not trade on any market and are just held to maturity. That does not mean saving bonds are not part of the US's debt.

On (1): Say a private industry issues a bond to the public to buy some land with a 20 year term and regular repayment schedule, some times called "coupon bonds" as they have attached coupons, which can be redeemed periodically. Do you claim that this bond is not part of the companies debt?

On (2): Yes the SS trust fund bonds were "excess taxes" that were spend by the govenment on many things, just like all other Treasury issued bonds are. That does not mean they need not be paid by the Treasury when they mature.

 

More on why US is not doing well:

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and

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These points I have been making for years. The first is main cause of the second and third. Poor schools with neighborhood / local funding. No other advance nation is so stupid - they have national funding and standards both for education and health care.

More at: http://www.bloomberg.com/news/artic...ican-exceptionalism-is-a-myth?cmpid=BBD121015

 

The situation is analogous to an individual who allocates spending into various spending categories and then puts the budgeted amount into each cookie jar. What the US government has done is taken money out of the Social Security cookie jar and put it in the General Fund cookie jar so it could provide the nation's wealthiest citizens with tax cuts. The capital gains tax went from 40% to 15% courtesy of American wage earners and the Social Security taxes they have paid over the course of the last 35 years. In the Social Security cookie jar, the US government took money out and put it into the General Fund cookie jar. It replaced the money it withdrew with an IOU. It doesn't matter how much money it promised to put back into the Social Security cookie jar. Now if it were an individual with this cookie jar budgeting process, and he/she needed or wanted a loan from the bank, he would go to the bank and disclose his income and his debt. But he wouldn't report his cookie jar debt as debt, nor would the bank recognize it as debt. And the same reasoning applies to the cookie jar "debt" the US government owes the Social Security Trust and it only owes Social Security those funds because the government says it owes those funds to the Social Security cookie jar. There is no quid pro quo. In order for there to be debt, there must be a debt which is owed to someone or some other party. You cannot be indebted to yourself and by the same token the government cannot be indebted to itself. It really is that simple.

As I have said many times now, what the government will now need to do is to reverse the tax cuts which have been funded by Social Security taxes or cut Social Security and Medicare benefits or some combination thereof. But it isn't debt and it can be funded.

 

What you've been saying for years is that these problems will lead to the economic collapse of the world. That's a little different than saying there's a problem with income equality in the US. You're stupid enough to actually predict when that will happen. How'd that work out.

 

Nice analysis. The real problem is convincing the electorate that they've been completely ripped off and it's time to pay attention.

 

As well as your prediction that it would be years, if ever, before the RMB would be part of the basis for IMF's SDR. I have some years ago admitted I got the timing of global turn down wrong. You in contrast got the fact wrong. I still expect a serious global economic contraction.

 

Well let's be fair, the RMB currently is not an SDR currency nor will it be an SDR currency for another year. The decision to include the RMB as an SDR currency was a political decision and not an economic decision. The decision has no economic impact whatsoever. China lobbied hard and long to get its currency included as an SDR currency. I think it was ill-advised, because China should have made and Western powers should have demanded more change. But who knows what deals China made behind closed doors if any.

Two, yes, you got your collapse of the dollar forecast wrong and you have admitted your dates were wrong, but you never admitted your underlying rationale was deeply flawed. And now you are using the words "serious global economic contraction" rather than a collapse of the US Dollar, but you are not explaining how that global economic contraction occurs. I assume you are still predicting the collapse of the US Dollar. Your current forecast is a pretty safe forecast given economies normally expand and contract and given your time frame isn't limited and your latest forecast doesn't include a reason for this "serious economic contraction" you have predicted. Your current prediction is sufficiently vague as to have virtually no value. It's that old "even a broken clock is correct twice a day" in action. So your current prediction is too vague to be meaningful and is therefore meaningless.

 

By "collapse of the dollar" I ment and still do, the loss of it unique status as refected in the "petrodollar concept." That is already starting to happen as several oil producers now do not demand payment in dolllars. Also, while still the dominate currency held in national reserves, the dollar percentages is falling in almost all and the fraction held in gold is rising, but still quite small. Interestingly China began reducing the dollar percent in its reserves several years ago and now other central banks are doing the same. All are now big buyer of gold.
Also interesting is that the US has by far the greatest percentage of it reserves in gold. It assumes that with the dollar's dominance it does not need any other form of reseves - it can just print dollars as needed and they will always be accepted.

I assume even you will not call the WSJ and Bloomberg "conspirator sources" just becasue you don't like the facts they are reporting.
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By "global contraction" I mean that total of global trade will decline - be less than that of the prior year. I don't think that has ever happen in peace time before, in part because global populations are climbing.

 

Well, I think the petrodollar notion is a bit antiquated and has little relevance. The value of the US Dollar doesn't reside in the petrodollar. It's vested in its economy and political stability. As has been explained to you many times now, China is reducing is liquidating its foreign currency reserves in order to prop up its economy. That's a move of desperation and it certainly isn't a threat to the US Dollar. Russia is also liquidating its foreign currency reserves in order to prop up its economy. That too is a move of desperation. The reason developing countries are liquidating foreign currency reserves, is because they have to. When the Federal Reserve begins raising interest rates, things are going to be more difficult for developing countries like China and Russia. Russia also has the problem with its dependence on oil exports and international sanctions and Putin's dreams of global dominance and personal glory.

The US economy as a percent of world GDP has been shrinking now for many decades and that is a good thing. That doesn't mean the US is or has been in economic decline, because it hasn't. It just means other economies are growing and that's a good thing. It isn't a threat to the US. After WWII the US accounted for more that half of world economic activity, not it accounts for about a quarter of world economic activity. Europe has been rebuilt, India, China, Russia, Eastern Europe, Asia, and portions of the Middle East, South America and Africa have grown their economies. Those are good things. This isn't a zero sum game BillyT. Just because some central banks are buying gold, it doesn't mean gold prices will rise. Buying gold isn't something central banks should do. But, people and countries are free to make mistakes. As repeatedly pointed out to you, the US central bank owns no gold...not a single ounce.

You are correct in this; since the US Dollar is the global reserve currency, the US does not need to hold much in the way for foreign currency reserves and it doesn't. As has been repeatedly mentioned, the US central bank has no US gold. US gold deposits are held by the US Treasury and used for minting coins. The US Treasury does mint gold, silver, and platinum coins for bullion and coin collectors and that is a function reserved for the US Treasury not the US central bank.

No, but I'm not sure what value you think resides in those articles. The fact is the price of gold has still fallen and continues to fall. Gold prices go up and they go down, the trend is down. That's why gold prices of have gone from 1.9 k per ounce to just over a thousand dollars an ounce. That's why futures indicate even lower gold prices in 2016.

Well, I think the petrodollar notion is a bit antiquated and has little relevance. The value of the US Dollar doesn't reside in the petrodollar. It's vested in its economy and political stability. As has been explained to you many times now, China is reducing is liquidating its foreign currency reserves in order to prop up its economy. That's a move of desperation and it certainly isn't a threat to the US Dollar. Russia is also liquidating its foreign currency reserves in order to prop up its economy. That too is a move of desperation. The reason developing countries are liquidating foreign currency reserves, is because they have to. When the Federal Reserve begins raising interest rates, things are going to be more difficult for developing countries like China and Russia. Russia also has the problem with its dependence on oil exports and international sanctions and Putin's dreams of global dominance and personal glory.

The US economy as a percent of world GDP has been shrinking now for many decades and that is a good thing. That doesn't mean the US is or has been in economic decline, because it hasn't. It just means other economies are growing and that's a good thing. It isn't a threat to the US. After WWII the US accounted for more that half of world economic activity, not it accounts for about a quarter of world economic activity. Europe has been rebuilt, India, China, Russia, Eastern Europe, Asia, and portions of the Middle East, South America and Africa have grown their economies. Those are good things. This isn't a zero sum game BillyT. Just because some central banks are buying gold, it doesn't mean gold prices will rise. Buying gold isn't something central banks should do. But, people and countries are free to make mistakes. As repeatedly pointed out to you, the US central bank owns no gold...not a single ounce.

You are correct in this; since the US Dollar is the global reserve currency, the US does not need to hold much in the way for foreign currency reserves and it doesn't. As has been repeatedly mentioned, the US central bank has no US gold. US gold deposits are held by the US Treasury and used for minting coins. The US Treasury does mint gold, silver, and platinum coins for bullion and coin collectors and that is a function reserved for the US Treasury not the US central bank.

Again, you aren't being very specific. And we did have a global contraction quite recently, it was The Great Recession of 2007-2009.

 

And how much you need to know that it doesn't matter anyway if something is unconstitutional or not?

 

Well you need to know this is the US and not your beloved Mother Russia. In the US, unlike Mother, Russia, the constitution matters. The rule of law matters. So it is important to know what the Constitution says. Every American child is taught about the US Constitution and what is written in the US Constitution because here it matters.

 

It seems to have mattered before the New Deal. Then there was a fight between Roosevelt and the Supreme Court, with initially a lot of decisions against the federal New Deal legislation, but, then, 1937 has reached what he wanted, and all the decisions were in favor of the New Deal. https://en.wikipedia.org/wiki/Judicial_Procedures_Reform_Bill_of_1937 Impressive time list below.

But the New Deal was, essentially, the establishment of a Big Central State.

Finally, a constitution which allows a PATRIOT Act is not really restricting anything.