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The Magnitude of the Mess We're in; send to your entire email list
Topic Started: Sep 17 2012, 11:24 AM (508 Views)
Joan Foster

Read and weep while the Dems Change the conversation to free birth control and Buffoon Boy is coddled by the press. READ AND WEEP for yourselves and your children. At least WE can say we tried.

By George P. Shultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor


http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html

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Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.

Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.

The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.

Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.

The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?

The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.

The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.

This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.

The issue is not merely how much we spend, but how wisely, how effectively. Did you know that the federal government had 46 separate job-training programs? Yet a 47th for green jobs was added, and the success rate was so poor that the Department of Labor inspector general said it should be shut down. We need to get much better results from current programs, serving a more carefully targeted set of people with more effective programs that increase their opportunities.

Did you know that funding for federal regulatory agencies and their employment levels are at all-time highs? In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.

This is all bad enough, but where we are headed is even worse.

President Obama's budget will raise the federal debt-to-GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.

Under the president's budget, for example, the debt expands rapidly to $18.8 trillion from $10.8 trillion in 10 years. The interest costs alone will reach $743 billion a year, more than we are currently spending on Social Security, Medicare or national defense, even under the benign assumption of no inflationary increase or adverse bond-market reaction. For every one percentage point increase in interest rates above this projection, interest costs rise by more than $100 billion, more than current spending on veterans' health and the National Institutes of Health combined.

Worse, the unfunded long-run liabilities of Social Security, Medicare and Medicaid add tens of trillions of dollars to the debt, mostly due to rising real benefits per beneficiary. Before long, all the government will be able to do is finance the debt and pay pension and medical benefits. This spending will crowd out all other necessary government functions.

What does this spending and debt mean in the long run if it is not controlled? One result will be ever-higher income and payroll taxes on all taxpayers that will reach over 80% at the top and 70% for many middle-income working couples.

Did you know that the federal government used the bankruptcy of two auto companies to transfer money that belonged to debt holders such as pension funds and paid it to friendly labor unions? This greatly increased uncertainty about creditor rights under bankruptcy law.

The Fed is adding to the uncertainty of current policy. Quantitative easing as a policy tool is very hard to manage. Traders speculate whether and when the Fed will intervene next. The Fed can intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans. This raises questions about why an independent agency of government should have this power.

When businesses and households confront large-scale uncertainty, they tend to wait for more clarity to emerge before making major commitments to spend, invest and hire. Right now, they confront a mountain of regulatory uncertainty and a fiscal cliff that, if unattended, means a sharp increase in taxes and a sharp decline in spending bound to have adverse effect on the economy. Are you surprised that so much cash is waiting on the sidelines?

What's at stake?

We cannot count on problems elsewhere in the world to make Treasury securities a safe haven forever. We risk eventually losing the privilege and great benefit of lower interest rates from the dollar's role as the global reserve currency. In short, we risk passing an economic, fiscal and financial point of no return.

Suppose you were offered the job of Treasury secretary a few months from now. Would you accept? You would confront problems that are so daunting even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. Our first Treasury secretary famously argued that one of a nation's greatest assets is its ability to issue debt, especially in a crisis. We needed to honor our Revolutionary War debt, he said, because the debt "foreign and domestic, was the price of liberty."

History has reconfirmed Hamilton's wisdom. As historian John Steele Gordon has written, our nation's ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.

The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.

The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.

The authors are senior fellows at Stanford University's Hoover Institution. They have served in various federal government policy positions in the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers.

A version of this article appeared September 17, 2012, on page A19 in the U.S. edition of The Wall Street Journal, with the headline: The Magnitude of the Mess We're In.
Edited by Joan Foster, Sep 17 2012, 11:26 AM.
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Joan Foster

Go ahead and vote for him because he is Black, or because he supports Gay Marriage or because you might want a late term abortion...but don't say you didn't know. These culture issues are going to be dust in the wind as The Great Incompetent leads us to the brink.

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Baldo
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Add in that his Foreign Policy is in ruins and we have "..the smartest president ever.." being the worst President ever. I'm serious. He is an Epic Failure.

BY the times he leaves the USA will have added close to 6 Trillion Dollars in debt. I am not even sure its possible to dig ourselves out of the hole.

Obama has harmed the United State of America
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Deleted User
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The one thing the AA community has not thought of is the harm Obama has done to future opportunities for black candidates running for President. Obama was the first black President and may well be the last one for generations. That should resonate, but doubtful that it does since these voters tend to live in the moment.
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Joan Foster

Obama makes the Hip Hop Mayor of Detroit look like an political icon.
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foxglove

Someone has to lay out the magnitude of the mess to the public. The MSM will not and will promote Obama. Perhaps the Romney campaign can use people like Newt Gingrich or Sarah Palin as surrogates to be more aggressive with the message. I doubt Romney can be as aggressive as necessary especially in pointing out how Obama has wasted money.

I have heard Romney is against QE3. That helps to separate himself from Obama.
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Joan Foster

I have been posting this stuff on my facebook for months. I mainly limit "my friends" to family and a few close friends....but its a vehicle for information. Some of these voted for The One. Lately I notice a few "likes" from certain people that I would not have expected.

We have to do whatever we can to counter the MSM ...just as we did in the Hoax.
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retiredLEO
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Baldo
Sep 17 2012, 11:40 AM
Add in that his Foreign Policy is in ruins and we have "..the smartest president ever.." being the worst President ever. I'm serious. He is an Epic Failure.

BY the times he leaves the USA will have added close to 6 Trillion Dollars in debt. I am not even sure its possible to dig ourselves out of the hole.

Obama has harmed the United State of America
I sincerely believe that Obama is the worst POTUS ever. Obama IMHO, is accomplishing exactly what he wanted to do, collaspe the system and build a new Marxist/Socialist system. Obama has almost accomplished that goal, he has certainly almost completely collapsed the capitalist system. Next, with another 4 years, by 2016, there will be more people living off the government and not paying any income taxes, then are actually paying their fair share. When Obama has more the 50% of the population, getting free stuff from the government, it is over, people will vote their own interest and we will be completely under government control. The progressives will have you exactly where they want you, you don't support them, then you will lose some free stuff. Only God knows if we will ever get our liberties back, if Obama wins in November.

On a side note, Rush mentioned today that Obama really violated his oath to defend and protect the US Constitution, by taking that film maker into custody for expressing his freedom of speech. Rush basically said that Obama is suppose to protect freedom of speech, not assault it, because of religious differences.
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Duke parent 2004
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Something good will come from an Obama victory in November:. Socialism will collapse sooner than it would under a Republican president.. But we're screwed regardless of the election results—for the simple reason that Mother Nature and her acolytes, the demographers, will soon enough reduce our wrangling to relative inconsequence.

As long ago as the 1940s, Gunnar Myrdal posited a contradiction in pay-as-you-go state-run pension plans such as our own Social Security.. As those plans grew in both scope and monetary benefits, the economic incentive for having children, who traditionally took care of their aged parents, waned.. Many studies since Myrdal's time have not only confirmed his insight but also demonstrated that the more pervasive and robust the benefits schemes became the greater the drop in fertility rates that accompanied them.. Add to the mix the "successes" of feminism this past half century, especially its tiara of abortion-on-demand, the postponement of marriage on the part of so many men and women determined to pursue advanced degrees and professional success, and a dramatic increase in the divorce rate occasioned by no-fault legislation and the increasing recognition by men marginalized by feminism that walking away from a (probably employed) wife no longer subjects them to the obloquy their fathers would have encountered—and what do you get?. Birth rates in the industrialized world that, with few exceptions, fall far short of replacement rates.

Meanwhile, modern medicine continues extending life expectancies.. As we oldsters refuse to peg out until our eighties, nineties, and beyond, the financial burdens that will be imposed on our working children and grandchildren, who themselves will amount to smaller percentages of the population than they have ever been, will finally put an end to the socialist delusion.

Our welfare schemes will in the lifetimes of many persons reading this note transform, and not for the good, the relations of generations with one another.. I cannot say how it will go beyond noting that my generation stands virtually no chance of being honored or celebrated in the year 2050.
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Joan Foster

Not to worry. Obamacare will refuse us treatment due to "averages" and kill us off.
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kbp

The math should not be so difficult that only we see the problem!
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chatham
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Duke parent 2004
Sep 17 2012, 06:12 PM
Something good will come from an Obama victory in November:. Socialism will collapse sooner than it would under a Republican president.. But we're screwed regardless of the election results—for the simple reason that Mother Nature and her acolytes, the demographers, will soon enough reduce our wrangling to relative inconsequence.

As long ago as the 1940s, Gunnar Myrdal posited a contradiction in pay-as-you-go state-run pension plans such as our own Social Security.. As those plans grew in both scope and monetary benefits, the economic incentive for having children, who traditionally took care of their aged parents, waned.. Many studies since Myrdal's time have not only confirmed his insight but also demonstrated that the more pervasive and robust the benefits schemes became the greater the drop in fertility rates that accompanied them.. Add to the mix the "successes" of feminism this past half century, especially its tiara of abortion-on-demand, the postponement of marriage on the part of so many men and women determined to pursue advanced degrees and professional success, and a dramatic increase in the divorce rate occasioned by no-fault legislation and the increasing recognition by men marginalized by feminism that walking away from a (probably employed) wife no longer subjects them to the obloquy their fathers would have encountered—and what do you get?. Birth rates in the industrialized world that, with few exceptions, fall far short of replacement rates.

Meanwhile, modern medicine continues extending life expectancies.. As we oldsters refuse to peg out until our eighties, nineties, and beyond, the financial burdens that will be imposed on our working children and grandchildren, who themselves will amount to smaller percentages of the population than they have ever been, will finally put an end to the socialist delusion.

Our welfare schemes will in the lifetimes of many persons reading this note transform, and not for the good, the relations of generations with one another.. I cannot say how it will go beyond noting that my generation stands virtually no chance of being honored or celebrated in the year 2050.
If one remembers a few episodes of Star Trek, there was mention of WW III early in the 21st century. Once ended, the world did away with money, allowed credits and everyone contributed. A world government was eventually set up and mankind survived and developed a warp drive and space travel and joined the Federation of planets. From that point on we took over the Universe. (See my post in Open Thread 2 about warp drive possibilities now.)

Seems like we are just about on schedule.
-----------------------------------------------------

21st century
After the end of World War III on Earth, scientist Zefram Cochrane built Earth's first warp-capable vessel, the Phoenix. He launched it on April 5, 2063. The warp-testing of this vessel would garner the attention of a Vulcan science ship operating just outside of the Solar System. Vulcans had not previously considered the Solar System of Earth, or Earth itself, worthy of their attention before this time. However, the science ship lands on Earth, and makes first-contact with Zefram Cochrane and the inhabitants of Bozeman, Montana. This contact would be the first time that Earth joins the interstellar community, and begins the road toward the foundation of the United Federation of Planets.
[edit]
22nd-23rd centuries
In the year 2119, an aging Zefram Cochrane opens the Warp 5 Complex on Earth, in the hope of building a vessel that would be the fastest human starship at the time. Eventually this project would yield the Enterprise NX-01, Earth's first deep-space exploration vessel.[unreliable source?] In 2150, a World Government, United Earth, was formed that included virtually all of the old nations on Earth.[citation needed]
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LTC8K6
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Assistant to The Devil Himself
Q: Why did Federal Reserve Chairman Ben Bernanke launch a third round of bond buying known as quantitative easing, or QE3, last week?
A:Because the stock market told him to. How else can he keep the Dow Jones Industrial Average above 13000? Companies are warning of slower earnings growth.

Q: How big is QE3? A: $40 billion a month—indefinitely. This is on top of the $45 billion a month the Fed is already spending on another program called "Operation Twist" through the rest of this year.

Q: Phew, is that all? A:Hardly. Since 2008, the Fed has dumped more than $2.3 trillion into the economy, artificially levitating the values of stocks and real estate against the ravages of an economic reckoning.

Q: What will the Fed buy with this QE3 money? A: Mortgage-backed securities. It is betting that the way to fix a deflated housing bubble is to blow another one.

Q: Does the Fed really just print all this money? A: No. That would take eons. The Fed simply adds zeros to its magic spreadsheet, and violà, money!

Q: Isn't this a Ponzi scheme? A: Of course not. A Ponzi scheme is illegal. This is a Bernanke scheme.

Q: Is it working? A: Every new QE is an admission that the last one didn't work. Since the first QE in late 2008, America's economic growth has mostly been described as "anemic."

Q: So why will QE3 last indefinitely? A: It spares Mr. Bernanke the humility of announcing QE4, QE5, QE6 ….

Q: Will this finally lower unemployment? A: You tell me. The Fed has launched QEs and held interest rates close to zero for nearly four years. The unemployment rate has remained above 8%.

Q: So why call it a "recovery"? A: It's not as depressing as the term depression. A depression can be defined as a prolonged period of high unemployment.

Q: Why not just call it that? A: Another theory holds that a depression is impossible as long as Mr. Bernanke can keep creating money.

Q: Won't this cause inflation? A: Only if you eat food, burn gasoline, require medical attention, purchase commodities or pay college tuition. Bottled water is $1.29, and air is still free.

Q: Why haven't QEs worked? A: It's a global economy and QEs simply leak out of the bucket. Companies, for instance, may use the cheap money to expand abroad. And consumers may use it to buy more Chinese goods.

Q: So why do it? A: The money flows into banks to strengthen their balance sheets. Corporations use it to lower borrowing costs and launch stock-repurchase programs. The ensuing boost in corporate performance helps executives collect "performance pay."

Q: Won't the Fed eventually have to sell the trillions in bonds it is buying? How will it be able to find enough buyers?

A: Don't ask. Nobody knows.

Q: How do QEs contribute to our national debt?
A:The Fed's purchases of U.S. Treasurys lower the interest rate our government pays to issue them. This can only encourage more borrowing. Since 2008, our national debt has risen more than 60% to more than $16 trillion.

Q: Isn't that astronomical?
A: Yes. But we can now measure the national debt in lightyears. A lightyear equals nearly six trillion miles. At $1 a mile, our national debt is only 2.6 lightyears.

Q: Why lightyears? A:Because our economic woes are indefinite, and that's why QE3 is indefinite. Mr. Bernanke should change his name to Buzz Lightyear: "To infinity and beyond!"

http://online.wsj.com/article/SB10000872396390443524904577649952284412644.html
Edited by LTC8K6, Sep 17 2012, 10:44 PM.
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LTC8K6
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Assistant to The Devil Himself
http://en.wikipedia.org/wiki/History_of_Federal_Open_Market_Committee_actions#Operation_Twist_.282011.29
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Baldo
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Unfortunately the death of Socialism will come at a great price. Maybe not for us oldsters, but our youth will be crushed for decades.

I remember a lecture I attended that was presented by Condi Rice at a business Seminar. This was right after the fall of the Soviet Union and she went in with a number of teams. Her findings were that roads stopped 50 miles out of Moscow, only railroads continued on. They searched for an economy but found there was no economy outside the large Russian cities. They couldn't believe it.

Central Planning brings ruin.

This was the price the Russian people paid for Leninism. There will be great misery for millions of Americans.
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