Support the Blog — Buy This Book!
For Kindle and with free ePub version. Only $9.49 Great reading.
Here is what Gary Shapiro CEO of the Consumer Electronics Association (CEA) said: Dvorak's writing sings with insight and clarity. Whether or not you agree with John's views, he will get you thinking and is never boring. These essays are worth the read!
Put this ad on your blog!
Syndicate
Subscribe to Main Blog feed here:
Subscribe to Comments too (below):
Junk Email Filter
#64 Mr. Fusion
Wow! I see words well beyond your education. You’re test driving a new dictionary aren’t you?
I bet Dr Dodd doesn’t even write his own device drivers.
#63, iHotAir,
The Clinton-era economy … was a by-product of the Internet explosion and dot-com bubble.
So we had Al Gore encouraging the internet, which succeeded, and created a new world order compared to the Republican encouraged commercial greed of the “dotcom” explosion which almost put the country in a recession.
Yup, ’nuff said.
Scott, all your link shows is an accounting for the Social Security Trust Fund. That is nothing different from what I’ve described. Where is the vault or account that actually holds all these Treasuries as you claim.
The SS fund is nothing more than the envelopes that people get describing the benefits they are owed in the future, promises with no real assets.
As to your comparison of president’s economies, the actual policies implemented matter. Clinton had a capital gains tax cut and other measures passed by a Republican Congress. Reagan had a Democratic Congress, and a Federal Reserve that collapsed the dollar early in his term. Nixon was to the left of Kennedy fiscally, with JFK proposing and LBJ passing a large tax cut, chopping 20 points off the highest income tax rate. If Barack Obama follows in the footsteps of LBJ and Clinton and passes tax cuts then I’ll support him. I can definitely see McCain raising taxes and being another Nixon.
#66, QB,
My mental picture is of his identical twin brother wearing a t-shirt with “I’m With Stupid” right above a roundel target.
#70 Mr Fusion
That’s not a mental picture, but you looking in the mirror.
This might not be a popular opinion but Clinton followed on the heels of George Bush Sr who raised taxes to balance the budget (he didn’t control spending enough). By ’92 interest rates and inflation were at their lowest levels in a long time at the expense of the unemployment rate.
Of course, Clinton sort of beat him on the “it’s the economy stupid” message but things were actually coming around by the time he took office. If Bush had stayed in office Gingrich would have eaten him alive anyway.
At a national (or federal) level there are only 2-3 levers for directly influencing the economy – interest rates, taxation levels, and budget management. I find it odd that interest rates can go up and down, budgets can be surpluses or deficits, but taxes can only go down.
Isn’t deficit spending a form of taxation? I’m not advocating that increased taxation is the only way to fix problems, but it certainly can be used as a lever to stabilize problems (with downsides like any policy).
Hardcore conservatives want to dismantle government and have controlled the message for so long it has become conventional (a priori) wisdom to lower taxes as the only way to stimulate the economy. Hard problems for harsh medicine.
#49 Yes, even though I’m not interested, I read the whole thing. I was testing a theory that when a topic such as this gets posted on this blog, it instantly attracts (perhaps triggered by some other blog) an extra heaping of idiot commentary. I’d have to say that my theory has not been borne out so far. The level of idiocy here is pretty normal. Present company included.
Though I was amused by #59: “Second, it is indigenous to think that Clinton had much to do with that boom.”
White man speak with forked tongue?
He might have meant “ingenuous”, but who knows?
#68 – MikeN,
Scott, all your link shows is an accounting for the Social Security Trust Fund. That is nothing different from what I’ve described. Where is the vault or account that actually holds all these Treasuries as you claim.
I don’t know where they are kept. It’s all book-keeping, just like a bank account. Hoarding all your cash under your mattress? Or, do you trust banks to hold your money? Perhaps you only trust a vault, so have it in a safe deposit box, or fireproof safe in your basement.
Presumably, you also get paper copies of any stock certificates and bonds you own. Presumably you keep those in the same safe or under the same mattress as your cash. Or, maybe you don’t like to put all your eggs in one basket. Maybe, you keep the cash under your own mattress, the stock certificates under a kid’s mattress, and the bonds under a third mattress.
In short, are you a nut job? Or, do you use a bank?
If you use a bank or brokerage firm to hold your money and investments, why should SSA not do the same?
You really can’t be that dense Scott. A treasury bond is sold and the money is then spent by the government. It doesn’t matter how many gazillion dollars worth of treasuries make up the assets of the SSA, in order to actually send the money out to pay a beneficiary, the government will have to reraise the money through tax revenues or additional deficit spending when the time comes to cash them in.
If you lend $100 dollars to Mr. Fusion and he doesn’t have it to pay you back when you need it, where exactly does that leave you? Still needing $100 is where.
That’s just it Scott. SSA doesn’t have the money in a bank account. This is like saying that you have a vault filled not with IOUs from Mr Fusion, but from yourself, and then saying you’re rich.
Also, even under this accounting where SS is loaded, it still doesn’t have the money to make payments in the future. According to the trustees, they will only be able to pay 78% of promised benefits in the future, with the number getting worse each year. So it’s surpluses now, then shrinking until you have bigger and bigger deficits each year.
#73
Yes, yes. Fast typing and a faulty spell checker creates these sorts of mistakes. Wouldn’t it be nice if John provided a preview mode…
#75 – Sea Lawyer,
You really can’t be that dense Scott. A treasury bond is sold and the money is then spent by the government. It doesn’t matter how many gazillion dollars worth of treasuries make up the assets of the SSA, in order to actually send the money out to pay a beneficiary, the government will have to reraise the money through tax revenues or additional deficit spending when the time comes to cash them in.
If you lend $100 dollars to Mr. Fusion and he doesn’t have it to pay you back when you need it, where exactly does that leave you? Still needing $100 is where.
Sea Lawyer, you can’t really be that dense. Treasuries mature. The government pays them off. Yes. We have a pay as you go system. Yes we also have very real funds in the system. If you don’t believe the government pays those treasuries when they come due then why do you have any faith in the cash in your pocket.
When Wall St. brokerage firms hold treasuries, they do so thinking of them as “risk free”, which isn’t true. They’re just lower risk than every other U.S. investment.
When municipalities want to call their bonds on a particular call date, they buy treasuries today that will mature on that date. When the treasuries mature, the municipality buys off it’s bond with the proceeds.
Yes. Treasuries can be used to pay bills. Just get the maturity dates right. The fed really does pay the money back. They may issue more debt to do it.
However, to my knowledge, the fed has never yet defaulted on their bonds. They are backed by the full faith and credit of the U.S. government.
The fact that the government may get downgraded by S&P, Moody’s, and Fitch in light of what W has done to the country notwithstanding, these are still quite safe investments.
Investors with a lot of cash on their hands will park them in T-Bills (say for 3 months) since they are as low risk as you can get. It’s not 100% safe, more like 99 44/100%.
If the US government pulled the plug on T-Bills then there would literally be anarchy in the streets.
#76 – MikeN,
That’s just it Scott. SSA doesn’t have the money in a bank account. This is like saying that you have a vault filled not with IOUs from Mr Fusion, but from yourself, and then saying you’re rich.
Also, even under this accounting where SS is loaded, it still doesn’t have the money to make payments in the future. According to the trustees, they will only be able to pay 78% of promised benefits in the future, with the number getting worse each year. So it’s surpluses now, then shrinking until you have bigger and bigger deficits each year.
Since you merely echoed Sea Lawyer, please read the same comment above. Also, consider how different it would be if Mr. Fusion were AAA rated. Consider then how different it would be if he were making scheduled payments in the form of coupons on the debt. Consider also how much different it would be if there were many bonds that matured on different dates. I could pay you from the proceeds of recently matured bonds or from the proceeds of coupon payments.
#79 – QB,
Exactly. And the cash in your pocket would likely be worthless as well, instead of merely worth less, as it is today.
#81 Hey, I have a Canadian dollars in my pocket and I’m not afraid to use them!
#78, taking on new debt to pay off old debt doesn’t do a thing to eliminate the debt. So you find yourself in the situation where these bonds are only as “safe” as the government’s ability to borrow more money. “Full faith and credit” sure sounds impressive though.
#83 – Sea Lawyer,
#78, taking on new debt to pay off old debt doesn’t do a thing to eliminate the debt. So you find yourself in the situation where these bonds are only as “safe” as the government’s ability to borrow more money. “Full faith and credit” sure sounds impressive though.
You’re absolutely right. Just remember that it is NOT the SSA taking on new debt to pay old, but the federal government.
I assume you’re invested in a mix of precious metals and Euros, right? You probably don’t keep more than a few hundred bucks denominated in U.S. currency.
I agree with #11.
It seems that all that matters is what political party the President of the U.S. is. That is what this cartoon is saying. I am glad to see that Congress, consumer spending, corporate investing, trade, the business cycle, economics, business theory, business, fiscal policy and monetary policy are useless and have no effect. It all depends on the political party of one person. This further proves the point that majoring in Political Science, Business or Economics is a waste of time and that MBAs truly are as useless as tits on a bull. Thank you for clearing this confusion up for me.
#84, I’m sorry, is the SSA not a part of the federal government?
#84, and just to clarify, I understand what you are attempting to say – that the SS surplus money is in effect still there since they are buying bonds, getting the money back when they mature and then reinvesting them back. That might be an interesting idea if the rest of the government weren’t perpetually operating in the red.
And the so-called budget surpluses of the 90’s were more to do with how the government does its accounting than of there actually being a surplus. I guess it’s easy to do cash accounting when you have the ability to just cancel your obligations at any point in the future.
If I am not mistaken, the SSA head office is in Arlington VA. In a file cabinet in the Secretary’s Office are three drawers of Treasury Bonds. The file cabinet only uses the standard OEM lock. What? There are trillions of dollars in there. Yes, but they are non-negotiable. They are also the paper trail for what is normally done by computer.
The Treasury Department sells these special bonds only to SSA. Each bond is in the hundreds of millions of dollars, pay interest, and are for a set period. I don’t know the numbers but they are similar to regular Treasury Bonds. They are constantly redeemed when matured and usually repurchased. While the concept to an IOU is similar, they are still backed by the US Government.
Treasury also has a regular account for day to day payments from SSA. In case anyone didn’t realize this, and Scott seems to be the only one who does, while billions of dollars move around the country every day, very little of that is in actual paper money. The volumes are just too high and as such, too much time would be wasted trying to constantly count it. All the interbank commerce is done by computer transactions. There is very little paper work as the cash itself doesn’t move, only the value. Of course, each bank keeps detailed records as do the brokers.
Most of the world’s wealth is in this form and not specie.
*
Scott, thank you for holding my IOUs. You know you’ll never be broke. And although I don’t have the wealth of the United States of America, I do have enough collateral if you ever need to collect. Or if you are ever short a few bucks yourself, just let me know. 8)
#86 – Sea Lawyer,
#84, I’m sorry, is the SSA not a part of the federal government?
Yes. Sort of. Its books are wholly separate. In fact, the greatest hoax in the whole thing was that when the government started to include the SSA fund on its books, they did so because this was the one solvent branch of the government.
So, because the finances of SSA were good, it made the rest of the accounting look better.
But, the money was never actually taken out. It was never made part of any other fund in the government. And, it would take an act of congress to redefine the SSA and allow other branches to steal the money.
So, it is all still there. It is a separate entity. And when the treasuries must pay interest or principal, it does get paid from the federal coffers back into the SSA fund.
#87 – Sea Lawyer,
#84, and just to clarify, I understand what you are attempting to say – that the SS surplus money is in effect still there since they are buying bonds, getting the money back when they mature and then reinvesting them back. That might be an interesting idea if the rest of the government weren’t perpetually operating in the red.
Of course it’s operating in the red. We are an unhealthy economy. However, if you are stating that the fed is any less likely to pay debts to SSA as they become due than they are to pay to China, or to anyone else, you are mistaken.
The fed is as good for the treasuries as it is for the cash in your pocket. If the default on one, both will be worthless.
And the so-called budget surpluses of the 90’s were more to do with how the government does its accounting than of there actually being a surplus. I guess it’s easy to do cash accounting when you have the ability to just cancel your obligations at any point in the future.
It was a budget surplus. It was collecting more in taxes than it was paying out. It does not mean that the debt was reduced to zero. However, the debt was reduced significantly over Papa Bush’s outstanding balance. And the debt was increased again with baby Bush.
#88 – Mr. Fusion,
Scott, thank you for holding my IOUs. You know you’ll never be broke. And although I don’t have the wealth of the United States of America, I do have enough collateral if you ever need to collect. Or if you are ever short a few bucks yourself, just let me know. 8)
Hmm … are offers made on a blog legally binding? 😉
Sorry, just making an ass of myself. (_|_)
Mr. Fusion,
Just curious, all that detailed knowledge of how this works, far more than I have, are you on the street or in DC?
It was a budget surplus. It was collecting more in taxes than it was paying out. It does not mean that the debt was reduced to zero. However, the debt was reduced significantly over Papa Bush’s outstanding balance. And the debt was increased again with baby Bush.
The problem is that the government is accruing expenses today that will come due at some point in the future. These are not included in the figures with the rationale being that the government can always cancel its obligations at any time through a change in the law. Given the political implications though, that sort of position is quite an unreasonable one. So in the mean time, the government keeps punting that football into tomorrow and claiming better than the reality numbers for today.
#92 – Sea Lawyer,
The problem is that the government is accruing expenses today that will come due at some point in the future. These are not included in the figures with the rationale being that the government can always cancel its obligations at any time through a change in the law.
You mean that you think the government is planning to default on its debt and declare bankruptcy?
We’d have to have a revolution after that in order to even begin to get other countries to take us seriously and consider us remotely credit worthy. Then we’d have to build a new nation from scratch.
No. I don’t think that is the plan. It may happen. I doubt anyone is making that Plan A though. Even I’m not that cynical.
#49, #73, #77
No problem with your spell checker, Thomas. Indigenous really is a word. You just used it in an amusing way. Like an ingenue in a movie: nobody takes offence (er, offense in the country of this blog).
Another word. Here, some posters (but most notably not M. Scott or M. Fusion) believe that the US Social Security system is indigent.