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John Adams Blog

The blog of The Antient and Honourable John Adams Society, Minnesota's Conservative Debating Society www.johnadamssociety.org

Wednesday, March 26, 2008

Time to Listen to Ron Paul?

Yes, says Elizabeth MacDonald, Fox Business blogger in today's entry.

Time to listen to Texas Congressman Ron Paul, the lone voice of reason in Congress today who’s got to feel like he’s shouting into a field of cotton with his repeated warnings about the dangers of a collapsing dollar, while the administration goes AWOL on the problem.

The dollar just hit a record intraday low against the euro on reports that consumer confidence levels have dropped to levels not seen since the post-Watergate era. It is down 7% year to date against the Chinese renminbi, it’s weaker than the Japanese yen and the Canadian loonie.

Maybe the rest of you aren't reading the same economic news that I am. Because Festivus will say that the Federal Reserve is just a conspiracy theory and that we're really spending Confidence-backed Audacity Notes (hoping for change). And Harsh will say this is just a cyclical downturn, an extended correction, not a recession, and certainly not what we used to call an inflationary depression.

Back to quoting Elizabeth quoting Ron Paul:

Congressman Paul rightfully warns us when he says the US government has “systematically undermined” the US dollar by expanding “the money supply at will for financing war or manipulating the economy with little resistance from Congress–while benefiting the special interests that influence government.”

In a room full of economists, I'm not one. But even this blonde can fathom that while you might get away with limitless spending in a short term, the credit card bill is going to come, and one day we'll be over our limit.

We are currently $53 trillion in debt, $400,000 per household, and it will cost $2-3 trillion more every year we fail to take action.

David Walker, USA Comptroller General before he suddenly resigned this month, has been beating this drum for a few years now, the situation becoming more dire as big spenders on both sides of the aisle continue to ignore him. According to Walker, "I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility."

(If you really want to get depressed, watch David Walker's interview with Glenn Beck.)

As Elizabeth (quoting Ron Paul) says, “Empires fail because they run out of money, or more accurately, run out of the ability to spend or inflate,” Congressman Paul warns. “We need to control spending, immediately, before it is too late.”

The dollar hitting another record low against the Euro yesterday was surely unrelated to the Fed printing new money to cover Bear Sterns loans and more new money to pay 1.2 million government employees in Iraq, right?

Eh, forget it. There are some scrap gold auctions closing on eBay, and I must bid.

Before I run off, it's not too late. You can still vote for Ron Paul, at least indirectly. We have a serious economic situation here, and he's the only presidential candidate insisting that we slash the budget and willing to say Bernanke's not wearing clothes. Bad image. You know what I mean.

03.27.08 UPDATE: U.S. Treasury Secretary Henry Paulson says, "Without change, rising costs [of Social Security and Medicare obligations] will drive government spending to unprecedented levels, consume nearly all projected federal revenues, and threaten America's future prosperity."

Glenn Beck (column yesterday) adds,

Translation: Every single tax dollar that is sent to Washington will be used to pay for just these two programs.

That means no money is left for anything else. Nothing. No Department of Defense or Homeland Security, no Department of Energy, no Department of Justice, no Environmental Protection Agency . . .

Hurray! We might be able to get rid of garbage bureaucracies even without Ron Paul!

Blogger Scribbler de Stebbing said...

And more. I'm not looking for this stuff; it's everywhere.

Today, Yahoo Finance Market Watch

9 Reasons Your Taxes Are Going Up

No matter who's elected president, the debt party's over

Well, folks, the party's over. Campaign rhetoric won't hide America's excesses, denial, incompetence and arrogance much longer. No matter who's elected, taxes will increase to cover massive debts.

Yes, our five-year war was totally financed by borrowing. But unfortunately, "deficit spending gives the illusion that the laws of economics can be repealed. They cannot. Americans will have to pay for the war at some point -- and when they do, they will be paying not the Bush markdown but the full price," the authors say.

11:37 AM, March 27, 2008  
Blogger Harsh Pencil said...


Where are on God's green earth did you get this? "We are currently $53 trillion in debt, $400,000 per household, and it will cost $2-3 trillion more every year we fail to take action."

Huh? Total US government debt is $9.5 trillion, or about $31,000 per person. About half of that is held by the Federal Government itself in the form of the Social Security Trust Fund. IOU's to yourself aren't debt and so don't count. Nearly another trillion is held by the Federal Reserve. This is because the Fed gets money into the economy by buying Treasury securities. So unless you think they are going to shrink the money supply (by selling their Treasuries) these don't count either. So the Federal debt is really closer to $4 trillion, so were looking at maybe $15,000 per person.

That doesn't count as Federal debt implicit "obligations" to future Social Security recipients. But no estimate of these comes even close to the numbers you are talking about. (And any calculation of this would also have to take into account that we have "obligations" to the government as well, such as paying taxes on the money in our 401k's and IRA's when we withdraw).

So everyone is entitled to their own opinions, but not their own facts. Does your number include mortgage debt? All private debt?

If so, I can't see how this is relevant. If I owe you $100,000, then I can see how you may think I'm in financial trouble, but I don't see how you can think WE (you and me together) are in financial trouble. Between the two of us, our total net worth is the same regardless of how much I owe you.

3:33 PM, March 28, 2008  
Blogger Scribbler de Stebbing said...

Google "$53 trillion obligations" and you'll come up with about 52,000 results.

Our obligations are debt. My mortgage payment, which doesn't have to be paid all at once, is an obligation and a debt. Medicare and Social Security ARE obligations. We owe that money.

You use the words "Social Security Trust Fund." LOL. You always were such a joker!

7:52 PM, March 28, 2008  
Blogger Harsh Pencil said...


My point of the SS fund holding Treasuries was precisely that this didn't count. It was one arm of the govt owing the other.

So I googled your $53 trillion. That is one estimate of SS and Medicare "obligations" plus the current debt. These are an estimate of the present value of the cost of providing these benefits IF NO CHANGES ARE MADE TO THE PROGRAMS. But these obligations have been reduced in the past. (Taxing SS benefits is exactly the same as reducing the amount of untaxed benefits, and we did this in the 80's.) More fundamentally, these debt numbers are essentially meaningless in determining the fiscal health of the country.

That is, suppose the government simply announced tomorrow "guess what everyone. Social Security and Medicare are now abolished. No more Social Security taxes and no more Medicare taxes and no more payments to old people." Are we as a society any richer? Are we any poorer? Answer: Some of us are richer (the young), some are poorer (the old) but as a whole, we are even.

But how can that be when we now have $53 trillion less in obligations? It's because, after the change, we also have $53 trillion less in assets.

If you want to worry about the fact that the country is aging, go right ahead. That's a real worry and incompatible with everyone retiring earlier. But that has nothing to do with made up accounting numbers like $53 trillion.

10:15 PM, March 28, 2008  
Blogger Jameson said...

"Medicare and Social Security ARE obligations. We owe that money."

Legally Social Security and Medicare benefits in the future are political promises made by politicians. They are not money that the United State Government owes, unlike Treasury Securities.
Practically, Social Security and Medicare benefits are reduced or raised depending on the shifting political winds. The Social Security retirement age used to be 65, is 67 under current law for me, and will probably be a higher number in the future.

"But how can that be when we now have $53 trillion less in obligations? It's because, after the change, we also have $53 trillion less in assets."

The tragedy of Social Security and Medicare is that delivering trillions of dollars of benefits will cost our economy far more than the dollar amount of benefits paid. The FICA taxes discourage labor supply by placing an extra 15.3% tax wedge for most wage-earners on top of state and federal income taxes. This encourages employers and employees to inefficiently provide compensation in non-taxable forms. It encourages clever attorneys, like John Edwards, to use real resources to transform labor income into non-labor income for tax purposes to avoid the Medicare portion on FICA. FICA taxes discourage investments in education by greatly reducing the returns to education investment for most Americans.

If you want to you one estimate of the discounted present value of SS and Medicare promises as $43 trillion, that the real cost of providing that is probably a present value of roughly $68 trillion. That is computed by using the Browning and Browning Public Finance textbook estimates that the marginal cost of a dollar raised by income tax is about $1.58.

So ending all Social Security and Medicare promises and taxes might result in a efficiency gain of a little less than two years GDP ($25 trillion).
This is a really rough estimate, but I think I did get the order of magnitude right.

So if we reduce $43 trillion in the present value of federal transfers, we may save $68 trillion.

Why doesn't some conservative make estimates of the excess burden and compliance costs taxes part of the revenue forecasting process in D.C?

For a nice discussion of the bad effects of taxes read Marty Feldstein:

More is available on taxes and Social Security here: http://www.nber.org/feldstein/

12:03 AM, March 29, 2008  

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