Ross Perot: America could be "taken over" from being "financially weak"

[KingOrfeo]

Ross Perot: America could be "taken over" from being "financially weak"

He does not say by whom or how or why -- oh, the heartbreak of Alzheimer's -- but he gives dire warning. Still, this bit is of some interest:

Still, he thinks that even the fresh voices in the populist, small-government tea party movement aren't focusing on the real doomsday issue: the deficit. Comparing the Washington establishment to a bunch of fiscal drunks, Perot is still waiting for America to undergo an intervention, before it finds itself owned by a new global power. "It's like the guy who's drinking—sooner or later, he's got to put a cork on the bottle, right?"

The deficit is so '92, Ross. No country was ever yet conquered by a foreign power because of its government-budget deficit.

That stellar peer-reviewed economics authority TVTropes is usefully instructive here -- more so than Ross ever was in his life, at any rate:

8. America the bankrupt: National debts don't work like your personal debt. For example, people don't buy your debt to prop up your currency. Yet for some reason a lot of writers tend to think of the national debt in the same terms as a bank loan, with angry creditors and everything. When this trope is invoked expect to see a consortium of angry foreign dignitaries banging on a conference table that they want their money back. In reality, if countries actually acted like this, the global financial system would probably collapse pretty spectacularly and everyone would be screwed. This trope is not specific to America, but for some reason Americans are exceptionally paranoid about the National Debt, particularly when the Chinese are buying it up, and now not buying it anymore. Oddly enough, America's National Debt isn't even that bad by international standards. Also, the US national debt is in terms of dollars, and the government can create as many dollars as they need to pay off the debt. Everyone would be paid the amount owed, but the new dollars would lead to inflation. The key here is that governments usually owe substantial portions of their debt to 'themselves,' i.e. either the government owes money to different branches, or those branches hold their assets as bonds and treasury bills instead of money; by owing money to yourself, you usually don't charge yourself interest (beyond inflation) and you theoretically can't default on money you owe yourself. This is how Japan can have gross debt worth over 100% of their yearly economic output and have little economic effects: 70-80% of its debt is owned by the Japanese Central Bank. In the United States, around 35-40% of the government debt is owed to itself, mainly to the Social Security Administration. Also, debt owned to foreign entities makes up MUCH less of the debt than people seem to think: as an example, China owns only 6% of the total US debt.

 

[rosco rathbone]

Yeah, "the deficit" is a real populist issue. Pete Peterson, Simpson and Bowles...please.

 

[trysail]

...The deficit is so '92, Ross. No country was ever yet conquered by a foreign power because of its government-budget deficit...

How's your Mandarin ? For your sake, let's hope it's better than your knowledge of history and economics.


Did you like the 20% prime rate in 1981 ?

 

[badbabysitter]

remember when the Japanese took over the states in the eighties


man, that was scary


really

it was






really

 

[trysail]

remember when the Japanese took over the states in the eighties

man, that was scary

really

it was

really

Only fools bought that nonsense. I've kept my copy of James Fallows' Looking At The Sun as a reminder of "Extraordinary Popular Delusions and The Madness of Crowds." Anybody with half a grain of sense knew that was a bubble economy.


Read Micheal Lewis' description of a generation of Japanese who had never seen a market go down.

 

[badbabysitter]

yet of course you're not a fool now

 

[trysail]

"Helicopter" Ben Bernanke's monetary policy:

 

[trysail]

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aHr04uJe9_OQ


Moody’s Says Time Shortens for U.S. Debt Outlook
By Christine Richard

Jan. 28 (Bloomberg) -- Moody’s Investors Service said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

...the chance that Congress won’t reduce spending and the outcome of the November elections have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt, the credit-ratings company said yesterday...

...The threat of a lower rating may cause international investors to avoid U.S. assets. About 50 percent of the almost $9 trillion of U.S. marketable debt is owned by investors outside the nation, according to the Treasury Department in Washington.

U.S. debt has increased from about $4.34 trillion in mid-2007 as the government increased spending to bail out the financial system and bring the economy out of recession. The budget deficit has increased to 8.8 percent of the economy from 1 percent in 2007.

“Because of the financial crisis and events following the financial crisis, the trajectory is worse than it was before,” Hess said...

...The U.S. has the highest government debt-to-government revenue of any Aaa rated country, Moody’s said yesterday. The ratio, at 426 percent, is more than double that of Germany, France and the U.K. and more than four times higher than Australia, Sweden and Denmark, according to Moody’s...

more...
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aHr04uJe9_OQ

U.S. Debt Clock:
http://www.usdebtclock.org/

 

[Joeybagadonuts]

He does not say by whom or how or why -- oh, the heartbreak of Alzheimer's -- but he gives dire warning. Still, this bit is of some interest:



The deficit is so '92, Ross. No country was ever yet conquered by a foreign power because of its government-budget deficit.

That stellar peer-reviewed economics authority TVTropes is usefully instructive here -- more so than Ross ever was in his life, at any rate:

If he's so damned smart, why doesn't he just run for president?

 

[trysail]

I didn't write this. I know the person who did. That person would not want to be credited here.

I don't agree with everything but I do agree with 90% of it. The current fiscal and monetary policies are doing nothing but sweeping problems under the carpet.

...the Fed creates money by purchasing assets (mostly mortgage debt) and expanding its balance sheet by about $40 billion per month. For all practical purposes, the expressions creating money and printing money are the same if measured by their impact.

In the late 1970s, as inflation kept rising into double-digit range, President Jimmy Carter decided that it was time for price controls. Price controls had been used many times before for periods of time but they never really worked and almost always had unintended consequences. Forcing prices lower usually results in increased demand and in lower supply. In the late 70s, the last item that stayed in a price control environment was beef. For weeks, you couldn’t go to a supermarket and find hamburger meat. People bought it in anticipation that prices would rise as soon as price controls went away. Beef suppliers withheld supply toward the end, exacerbating the situation. You can almost guess the conclusion. The price controls end, supplies flooded the market and there were no buyers. Everyone already had enough hamburger meat in the freezer to supply the entire barbeque needs of the following summer. Prices plunged.

Temporary tax credits aren’t exactly price controls but their impacts are similar. Look what happened while the home buyer tax credits or cash-for-clunker programs were in place and then looked what happened after. Sales spikes during, in effect, a government sale only to dry up once the program
ended. Eventually supply and demand normalized again and life went on. Neither program had a long term effect on the auto or housing market. Indeed, housing is just bottoming now, a full two years after the last tax credits expired.

But we do have price controls in place elsewhere in the U.S. and they are causing major distortions. If you haven’t figured it out yet, I am talking about the zero interest rate policy of the Federal Reserve. In theory, the Fed thinks that zero interest rates will stimulate additional buying and increase monetary velocity. No one can prove whether that conjecture is right or not because I can’t prove whether 10 more houses or a million more houses were sold because interest rates were a quarter percentage point lower than would be in a free market environment. But what I can say is that with mortgage rates at all-time lows, the level of mortgage refinancing is far below record levels and the number of new homes being sold is only about half the 20-year average and only about a third of what they were at the peak less than six years ago. I also can tell you that corporations have record levels of cash on their balance sheets. They have used the low interest rate environment to raise money at a negative real cost (inflation minus the after-tax cost of debt) so that they will be able to withstand the next future economic downturn without being dependent either on the financial markets or the banks. The bottom line is that there probably has been some modest economic benefit from lower rates but not very much. Furthermore, each additional attempt to pump in more money and move rates fractionally lower seems to have less and less impact.


I have discussed the benefits but what about the costs? The most obvious and direct cost is what savers lose as the government forces interest rates lower. If I ignore government borrowing, there is roughly $10 trillion of monetary assets (net) tied to floating interest rates. Net means assets tied to floating rates minus liabilities (mostly working capital loans, home equity loans, and credit card debt). Thus every one percentage point change in rates equals about $100 billion in lost income. Clearly, the group most impacted is seniors living on retirement. The obvious beneficiary to the low rates is the government, both Federal and local, that get the benefit of a big reduction in borrowing costs.


The low rates have a more insidious cost. One of the purposes of a zero interest rate policy is to entice holders of money to put it to work. That means invest it or spend it. Money sitting still earning nothing in a world that has some degree of inflation loses its value. Since no one wants to lose, there is incentive to put it to work, particularly when the government tells you that it plans to keep rates near zero from now to whenever, which could be when my youngest grandson gets to the age where he might get Social Security, assuming it’s still there for him. That means more people buying junk bonds than should be buying junk bonds. That means junk bonds are overpriced. They may stay overpriced as long as the government artificially keeps interest rates near zero but they won’t remain overpriced when markets get back to normal. It means commercial income-producing real estate is overpriced for the same reasons. In fact, the Fed’s policy is designed to lift the value of all assets so that there will be some sort of trickle down wealth effect. That means bonds, stocks, art and even gold are overpriced.

Does that mean everything is a sale? Not today necessarily because the government has told us that it will keep prices artificially high indefinitely. But indefinitely doesn’t mean forever. At some point, this bubble bursts. At some point, inflation will erupt and force the government out of its fantasy world of distortion creation. Price controls always end badly and make no mistake, zero interest rates are simply another form of price control. Even the Fed acknowledges that what it is doing is a grand experiment. If governments worldwide showed more fiscal prudence perhaps the experiment might not be so epic. But it is. And the likelihood the central banks of this world can unwind all the excesses they are creating without doing any harm becomes more and more difficult as they expand their collective balance sheets more and more. If they withdraw the excess credit too slowly, then inflation will eat up the value of our assets. If they do it too quickly, then they create a recession, perhaps a nasty one.

During bubbles, it always feels good. Didn’t it feel good to own Amazon, Yahoo and AOL in 1999? Didn’t it feel good when the value of your home was rising near 10% per year and you could borrow to buy a new car any time you wanted to? So enjoy the moment. It may be here for another couple of years but it won’t last indefinitely.

What can we do? Right now, there isn’t much. Gold bugs suggest owning gold but the evidence doesn’t suggest that gold is going higher when everything else, including the world supply of money, is shrinking. Probably the best solution is to ride the wave, at least until there is at a conversation about tightening money or inflation starting to appear. At that point, cash and short term high quality bonds (e.g. Treasuries) become your friends.

What I am trying to say is that while economies are healing and the world is improving, the nice financial markets today are a composite of better economic news accelerated by an unnatural high fed by excessive money creation. The creation of excess money will create distortions that won’t be erased until normal market forces replace artificial ones. Perhaps the biggest pain will be felt by the Federal government itself which will have to find a way to service an exploding debt burden during a time of normal interest rates. The artificial cost today of about $100 billion could easily expand by a factor of four or five. The spending cuts necessary to offset rising interest costs will be very painful and felt by all.

So enjoy the ride for now. It isn’t time to get off. But be aware that today’s magic carpet ride is as real as the one in The Arabian Nights. It will come to an end. Proper policy can ease the pain but it is highly unlikely it will erase the pain...

 

[Liar]

How's your Mandarin ?

The Medicare and Social Security trust funds holds over five times as much of the US debt as China. Do you speak geezer?

 

[KingOrfeo]

Only fools bought that nonsense. I've kept my copy of James Fallows' Looking At The Sun as a reminder of "Extraordinary Popular Delusions and The Madness of Crowds." Anybody with half a grain of sense knew that was a bubble economy.

And China has a better one?

 

[KingOrfeo]

The Medicare and Social Security trust funds holds over five times as much of the US debt as China. Do you speak geezer?

Need you ask?

 

[trysail]

The Medicare and Social Security trust funds holds over five times as much of the US debt as China. Do you speak geezer?

So what?


If it's bad paper, it's bad paper. Like a Potemkin village or a Ponzi scheme, you can keep the charade up until it doesn't work anymore and— of a sudden— nobody is willing to accept those little pieces of green paper as payment for anything.


P.S., FYI— Medicare is an unfunded liability.

 

[trysail]

Would somebody please explain how to visualize or conceptualize a trillion.



A million, I can do. It's 20 × a full stadium.

A billion, I can do. It's 20,000 full stadiums. I can comprehend that.


But 20,000,000 full stadiums ? Un, unh. No can do.

 

[NeverEndingMe]

I realize you are mentally challenged and are required to wear a helmut.


Summary, Obama ( and the others in Government) are wasting a fucking ton of money. These fucktards are not responsible.

point #2 - yes you are a #2 but the fact is obama's policies are fucking up the economy.

point #3 - when will those in government pay their fair share?

He does not say by whom or how or why -- oh, the heartbreak of Alzheimer's -- but he gives dire warning. Still, this bit is of some interest:



The deficit is so '92, Ross. No country was ever yet conquered by a foreign power because of its government-budget deficit.

That stellar peer-reviewed economics authority TVTropes is usefully instructive here -- more so than Ross ever was in his life, at any rate:

 

[trysail]

http://noir.bloomberg.com/apps/news?pid=20601110&sid=aYXKRhOYp738


When Pretending Fails to Hide Bankruptcy
by Laurence Kotlikoff

Feb. 23 (Bloomberg) -- Our country is bankrupt. It’s not bankrupt in 30 years or five years. It’s bankrupt today.

Want proof? Look at President Barack Obama’s 2010 budget ( http://www.gpoaccess.gov/usbudget/ ). It showed a massive fiscal gap over the next 75 years, the closure of which requires immediate tax increases, spending cuts, or some combination totaling 8 percent of gross domestic product. To put 8 percent of GDP in perspective, this year’s employee and employer payroll taxes for Social Security and Medicare will amount to just 5 percent of GDP.

Actually, the picture is much worse. Nothing in economics says we should look out just 75 years when considering the present-value difference between future spending and future taxes. Over the full long-term, we need an extra 12 percent, not 8 percent, of GDP annually.

Seventy-five years seems like a long enough time to plan. It’s not. Had the Greenspan Commission, which “fixed” Social Security back in 1983, focused on the true long term we wouldn’t be sitting here now with Social Security 26 percent underfunded. The Social Security trustees, at least, have learned a lesson. The 26 percent figure is based on their infinite horizon fiscal- gap calculation.

But the real reason we can’t look out just 75 years is that the government’s cash flows (the difference between its annual taxes and non-interest spending) over any period of time, including the next 75 years, aren’t well defined. This reflects economics’ labeling problem. If you use different words to describe the receipts taken in and paid out each year by the government, you produce entirely different cash flows and an entirely different fiscal gap measured over any finite horizon.

Matter of Language
It’s only the value of the infinite horizon fiscal gap ( http://www.cbo.gov/doc.cfm?index=11579 ) that is unaffected by the choice of labels of language. Take this year’s payroll tax contributions. Let’s call these transfers from workers to Uncle Sam “borrowing” by the government, rather than “payroll taxes,” since the money will be paid back as future benefits. If the future payback isn’t in full (equal to principal plus interest), we can call the difference a “retirement tax.” Presto! With this change of words, our 2011 deficit of about 10 percent of GDP is boosted another five points to 15 percent.

With one set of words, taxes are higher now and lower latter. With the other set of words, the opposite is true. But neither set of labels makes more economic sense than the other or changes what the government takes, on balance, from any person or business in any given year.

This is no surprise. The math of economics rules out an absolute measure of the deficit, just like the math of physics rules out an absolute measure of time.

Bottom Line
The bottom line, then, is that we need to look at the infinite-horizon fiscal gap not just for Social Security, but for the entire federal government. That analysis, based on the Congressional Budget Office’s long-term alternative fiscal scenario, shows an unfathomable fiscal gap of $202 trillion. And covering this gap requires coming up with the aforementioned 12 percent of GDP, forever.

If this gives you the willies, there’s a ready narcotic -- the president’s 2012 budget ( http://www.whitehouse.gov/omb/budget/Overview/ ), which shows that most of our long- term fiscal problem has miraculously disappeared; the fiscal gap isn’t 12 percent of annual GDP. Nor is it 8 percent. It’s now 1.8 percent.

This fantastic improvement in our finances is due, we’re told, primarily to the Independent Payment Advisory Board. This board, to be established in 2014 (after the next election, of course) is charged with recommending cuts to Medicare and Medicaid providers when their costs grow too fast.

Repealing Cuts
We’ve had laws mandating such cuts for years, and they are routinely repealed. Indeed, President Obama signed the latest such repeal last June. But rather than laugh out loud at this cost-control mechanism, the Medicare trustees, three-quarters of whom were appointed by the president, assume in their 2010 report ( https://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf ) that these cuts will be made -- to the dollar. And the 2012 budget cites the report’s fictional forecast as its authoritative source.

No one takes the 2010 Medicare trustee report’s long-run projections seriously, least of all Richard Foster, Medicare’s chief actuary. Foster added this statement to the end of the report: “The financial projections shown in this report for Medicare do not represent a reasonable expectation…in either the short range…or the long range.”

This isn’t the first administration to conceal our long- term fiscal problem. Back in 1993, Alice Rivlin, then deputy director of the Office of Management and Budget, asked me and economists Alan Auerbach and Jagadeesh Gokhale to prepare a long-term fiscal gap/generational accounting for inclusion in President Bill Clinton’s 1994 budget.

Politics Triumphs
We worked for months on the analysis, but two days before the budget’s release, the study was excised from the budget. We were shocked, but, in retrospect, the politics are clear. The Clinton administration wanted to claim it was fiscally prudent and the study, which showed unofficial debt growing at enormous rates, showed the opposite.

The fiscal gap’s next near appearance in a president’s budget was in 2003. Treasury Secretary Paul O’Neill commissioned Gokhale and Kent Smetters to do the study. It showed a massive $45 trillion fiscal gap -- not a great basis for pushing tax cuts or introducing the prescription-drug benefit for seniors, known as Medicare Part D. O’Neill was ousted on Dec. 6, 2002, and a couple of days later the fiscal-gap study was discarded.

I’m not sure whether censoring the fiscal gap is more dishonorable than fudging it. What I do know is that we can’t assume our problems away and that I expected far better of this president when I voted for him.

 

[trysail]

Accounting 101 for the U.S. citizen:

http://www.youtube-nocookie.com/embed/EW5IdwltaAc?rel=0

 

[renard_ruse]

History has already proven Ross Perot was right. He's already been more than vindicated.

Giant sucking sound, much?