Tag Archives: Treasury

Mack Introduces Resolution of No Confidence in Treasury Secretary Geithner in U.S. House

Congressman Connie Mack (R-FL) today announced that he will be introducing  to the House a resolution for a vote of no confidence in Treasury Secretary Timothy Geithner. This vote mirrors the Senate proposal by Sen. Rand Paul last night.

The measure points out Geithner’s mismanagement of the U.S. economy as the reason for the vote and Rep. Mack said, “Secretary Geithner repeatedly predicted that if the debt limit was not raised, the stock markets would crumble and our nation’s AAA Credit Rating would be reduced. Despite some Members’ very public objections, the Congress as a whole went along and raised the debt ceiling as Geithner demanded. Immediately after, the foremost global financial markets fell precipitously, andStandard and Poor’s reduced  America’s Credit Rating.  In short everything Secretary Geithner promised would not happen has happened because we raised the debt ceiling.  It’s time for a change and I commend Senator Paul for taking the legislative lead to invoke change in the Administration.”

The failed promise Geithner made that the nation’s credit rating would never be downgraded is being added onto a growing stack of failures:

  • Promised more infrastructure spending would create jobs, the unemployment rate has hovered over 9%.
  • Promised never to embrace a strategy to weaken the U.S. dollar, the dollar has hit an all time low in value.

His recent statements that the U.S. could just print money to pay off any debt shows a real disconnect with the American people. Using the printing press to create a deluge of cash to pay off mounting debt would certainly decrease the value of the greenback and create massive inflation. The price increases on food, clothing, electricity and other needs would likely push many U.S. families over a financial cliff.

Mack concluded: “Secretary’s Geithner’s management of our nation’s assets is as appalling as asking hard-working Americans to pay more in taxes when he didn’t pay his own.  The writing was on the wall when Secretary Geithner was nominated by President Obama.”

These resolutions are non-binding and will likely have no effect other than raising awareness of the Treasury’s failure to get a handle on the American economy. In 1950, Congress successfully passed a vote of no confidence against Secretary of State Dean Acheson over his failure to report to Congress on the Truman-Churchill talks. The successful vote did eventually pressure Truman to answer that no commitments to Britain had been made for troops.

What is not immediately clear is what is expected from the motion against Geithner. Sen. Paul had demanded that the Secretary resign, but with no ability to enforce such a motion, little action is expected.

Victory Formation! Down.. Set… Hike!!!

Once again, we are faced with another deadline for another manufactured crisis contrived by the Obama administration. According to the Treasury secretary, the federal government will officially run out of money on August 2nd due to the country hitting its debt ceiling.

Since 1917 when Congress passed the Second Liberty Bond Act, the United States has had a self-imposed credit limit for borrowing money. Almost 100 years later, that credit limit stands at about $14.3 trillion. In the past 10 years we have raised the debt ceiling a total of — you guessed it — 10 times. Finally the taxpayers and voters of the country had had enough and voted in a Republican majority in the House of Representatives to put a stop to the insane spending binge that our federal government has been on for the past three years. What’s uncharacteristic is the fact that these politicians are actually keeping their promise and, at least so far, standing firm on their campaign vows. Enter the demagogues.

Presented with the prospect that they might actually have to spend within their means for the first time in their political lifetimes, Democrats are having conniption fits over Republican resistance to raise the debt ceiling for the umpteenth time. As per their usual playbook, they have hauled out scare tactics of government shutdowns, Social Security beneficiaries going without checks, members of the military not being paid and other typical demagogical techniques with which we are all familiar with by now.

As August 2nd looms on the horizon and the stare down continues, some Republican leaders’ knees are beginning to buckle. After all, no one wants to be accused of denying someone their Social Security check or our brave men and women defending our country overseas their well deserved pay. So what is the loyal opposition to do? Easy!

Run out the clock!

What would actually happen if our federal government, which is become all too comfortable with misspending trillions of dollars per year, had to live within its means like the rest of us? Some say the government would shut down. This is a bad thing? Just think, we could save $4.1 billion in government waste per day that our government is not functioning. Others say that we would default on our debt for the first time in the nations history. Still others spread political terror by once again exploiting the elderly by telling them that their Social Security and Medicare benefits will be held up.

Wrong!

Economic experts (who actually paid attention in Econ 101) tell us that there is sufficient revenue coming into the government to pay the interest on our existing debt for the rest of the year. Political terrorists bomb number one — disarmed. So what about Social Security and Medicare benefits? Not to mention pay for the military?

Teachable moment!

As a former civics teacher, I take you back to your ninth grade year. You are sitting in your civics class (if you were fortunate to have one offered to you to begin with) wishing that you were somewhere else, while your faithful teacher was teaching you about an old wrinkly document known as the Constitution! Those of you who are paying attention will remember that Congress is not in charge of spending money. It allocates it by law, but it is the executive branch that is in charge of distribution. In other words, the priority in which money is spent is up to the president of the United States. So if indeed the standoff continues past August 2nd, and this is indeed the day we had our credit limit as a country, then all eyes should fall to the president for the distribution of the available funds, of which there is enough to pay for servicing our debt, paying our military, and cutting Social Security checks. Bomb number two—disarmed.

So what should Republicans do in this situation? In the spirit of fair play, I would suggest them presenting a plan for spending cuts, tax rate reductions and teaching the federal government to live within its means. Aside from that, it’s simple:

Take a knee!

When China Turns Away

It may already be happening.

Recently released US Treasury data shows China has been actively reducing its holdings of Treasury debt. China has cut its holdings by $100 billion over the past year to just $844 billion. China has been seeking new ways to recycle its trade surplus and hold back any rise in the yuan.

“Diversification should be the basic principle,” said Yu Yongding, ex-adviser to the Chinese central bank. China has been buying record amounts of Japanese, Korean, Thai, and Latin American bonds to replace its U.S. debt holdings.[1]

China may not be done dumping U.S. Treasuries:

Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that “end of QE” again?[2]

Where will the U.S. Dollar and the American economy be if they walk away completely?

It may have been in the cards for quite some time:

Sources:
[1] China Reducing Holdings Of U.S. Treasury Debt
[2] China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

Federal Debt Report/ Feb. 2011

       America’s National Debt rose by another $63.7 billion dollars in the month of February, according to the Bureau of Public Debt*. That currently leaves us with a grand total of $14.195 trillions of debt as of March 1st, 2011. In a behind the scenes move to try to postpone having to raise the debt ceiling, the Obama administration and Secretary of the Treasury, Timothy Geitner dipped into the treasuries cash reserves. I suppose that it would be pretty awkward to add an increase of our debt ceiling into the mixture of budget battles going on in Congress right now, and their timid attempts at trying to keep our government from shutting down. 

                                                                                                       

     To the left here we see President Obama signing an executive order to create a budget commission.There was lots of pomp and celebration about how Obama is taking a step forward to address our current fiscal insanity and massive debt problem. With the help of the Media puppets, this was celebrated as if someone had invented a cure for the worst plague to ever threaten America: Our National Debt. They hadn’t even held one meeting and the MSM was talking about how great the chosen one was for coming up with such a brilliant idea, to hear them tell it 24/7 at the time.

       These gentlemen called all kinds of meetings, conferences, and hearings to try to come up with viable working solutions to our looming national bankruptcy. They included top business executives, past budget hawks, U. S.  Congressmen and Senators. all putting their knowledge and experience together to try to find a debt solution. In the end they came up with a variety of plans, but couldn’t reach a simple concensus on even the most basic of actions needed, such as which budget cuts to make, whether to raise taxes and upon whom, and what other ways we could reduce our massive debt burden. They came up with reports that contained a variety of needed measures to avoid economic an collapse in America. They then submitted  these reports to the President, The Treasury and the U.S  Congress. After which, the President submitted a budget proposal to Congress that ignored every single reality and recomendation that was in the budget commission’s reports. To put it bluntly, it was all a charade to make Obama look like some kind of hero. This charade was totally exposed when Obama blatantly ignored the reality of their reports, and submitted a budget that continues to expand our national debt to the point of insolvency today.

 * http://www.treasurydirect.gov/NP/BPDLogin?application=np

Remember When They Warned Us That Japan Might Not Always Buy Our Debt

I was young, but I remember the news stories and the dire warnings from family friends, parents and uncles: Japan owns us .. and they may not always want to.  Yeah, that was a long time ago and a major player has changed, but the warning is still relevant.

Before the Japanese asset price bubble burst (sound familiar? – yeah, different article .. I know) in the early 1990’s, Japan was the single largest holder of U.S. Treasuries (our debt).  I can vividly remember being reminded of cheap Japanese goods flooding U.S. markets, the “Buy American” campaign and the fact that if Japan ever stopped buying our T-Bills, we’d be screwed.  Japanese firms were buying up U.S. real estate and there were even conspiracy theories that they would call in the debt if it went bad and take our National Parks or mineral-rich land.  Sounds nothing like today …

We apparently never learned our lesson.  We kept on borrowing and spending as-if we would never have to pay it back.  Japan’s economy collapsed and another manufacturing giant took its place as America’s sugar daddy – China.

Oh, I know, all that noise about the Japanese not wanting to purchase our debt never happened and another benefactor showed up to take their place when the Tokyo couldn’t.  So, “why so serious”?  Things are different now.

From 1970 to 2008, we can call it the BB period (before Barry), the highest debt load as a percentage of GDP was 40.8% (yeah that includes G.W. Bush’s tenure). In 2009 we suddenly spiked to over 60% and it’s scaring some folks – namely those who hold large portions of our debt.

It might have a different slant if 2009 was projected to be an out-lier, but the Obama administration and money-drunk Progressive Congress have gone all out.

  • $56 Billion in new regulations
  • $1 Trillion health care reform
  • $785 Billion Stimulus
  • Billions in foreign aid
  • Pushed Unemployment to a record-high 99 weeks of benefits
  • my stomach is turning flips .. can’t go on with the list – but you get the point

This irresponsible spending of money that America does not have is pushing our debt to “unsustainable” levels.  In 2010 it’s projected to be 67.1% of GDP and take a wild guess for 2011 – down?  nah .. 70.1% of our national gross domestic product will be represented by debt.  The cause of the mess is obvious, but that’s not the point of this post – it is the dire effects that about to hit us all smack in the face.  Just like the young adult parents have to let feel the pain of their poor choices – our benefactors are leaving us to fend for ourselves.

As the Fed released a torrent of printed money at our debt, outside investors are running away from purchasing our debt.  The Fed’s monitization of the debt was supposed to cause higher bond prices and therefor lower yields (interest rates).  That would make credit easier to get and savings less attractive.  All of this to get us to go out and spend money that many don’t have and some are too afraid to spend.  It didn’t work.

Americans aren’t looking for more credit, they’re looking for jobs.  The Chinese and Europeans aren’t looking to have yeilds go down and they have absolutely no interest in seeing a flood of pretend money in international markets.  They seem to have had enough.  Americans aren’t borrowing and now it appears the rest of the world may no longer be lending.

Despite the printing of gobs of cash and buying our own debt with the monopoly cash – yields rose.  The only cause for that is that the Fed may be the only one buying T-bills in any decent volume.  As a side effect, Americans get to watch the dollars buy less.  Hello late 1970’s .. inflation, milk, gas, you name it.. out of reach.  Oddly enough, Paul Volcker was there then too.

Is it too late for American austerity?  Remember when they warned us?

Learning Economics From Chinese Students

As shameful as it is, a Chinese student gets what we’re struggling to understand – government policies are stifling consumption, exports and therefor the economy.

Bloomberg.com post mentioned that when a professor was discussing the nation’s move to keep interest rates low, a student chimed in with true wisdom:

Peking University professor Michael Pettis was discussing declining bank-deposit returns when a student interrupted with a story about her aunt that may stymie China’s plan to boost consumer spending.

“To send her son to university in six years it means she must replace each yuan in lost income with one from her wages,” the student said, according to Pettis.

Read it again, this example demonstrates one of the pressures that government-control of the economy (or in our case, Fed control) exerts.  By keeping interest rates artificially low, investment income is hard to come by through anything but the most-volatile markets: Bond yields stink, CDs are worthless, and savings accounts generate no appreciable income.  That means that savers now have less income to pay for normal expenses and that limits their ability to buy goods and services within the economy.  Without investment income, your paycheck is all there is and that’s not enough.

China’s problem is very much similar to ours:

“Consumption is already at a dangerously low level,” said Pettis, author of the “The Volatility Machine,” a 2001 book that examines financial crises in emerging markets. “If it doesn’t begin to rise very quickly, China has a problem because household consumption will continue to drop as a share of GDP.”

Consumption represents as much as 70% of U.S. GDP.  This lack of non-wage income, a large portion of income of retirees and near-retirees, means there is simply less to spend.  This represents another downward push on the supply of money.  If deposits in banks decline due to CDs and savings accounts being poor investments or not growing effectively, the banks have fewer assets to loan against.  We are a fractional reserve system and only money loaned creates more money.  As I discuss in this post on serious deflationary concerns, that’s the last thing we need.

As the post continues, it raises an interesting point that is of concern with Obama’s current direction.  It’s been well-publicized that the President would like us to rely more on exports and less on consumer spending to power the U.S. economy.

The Group of 20 nations has urged China to boost domestic consumer spending to help offset reduced consumption from debt- strapped consumers in the U.S. and Europe. If Chinese shoppers fail to take over that mantle as the government’s 4 trillion yuan in stimulus wanes, then the nation may have to fall back on exports for growth. That would revive trade disputes with the U.S., which is battling 9.5 percent unemployment, said Huang.

Great, protectionist trade battles to return:  Chicken tariffs anyone?

Low interest rates are intended to create investment through credit and therefor grow the economy, but left too long and in a disinflationary economy, they create a just the environment required to foster deflation.  As this article at AARP.com states:

On Thursday, James Bullard, the president of the Federal Reserve Bank of St. Louis, warned that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

So we’re keeping loose monetary policy because even the Fed has figured out that deflation is a real concern.  What’s startling is that the Fed’s next action will pull even more investment income out of the market.

Mr. Bullard, in an conference call with reporters on Thursday, said he was not calling right away for the Fed to drop its position that interest rates would remain exceptionally low for “an extended period,” or to resume buying long-term Treasury securities to stimulate the economy.

When the Fed buys Treasury bonds, it means they are infusing cash into the economy by buying U.S. Treasury debt: monitizing the debt.  This action will lower the rate on bonds (yields) which should make it less-expensive to borrow money.  In economics, there are two sides to every position.  If borrowing costs are low, lending incentive is minimized.  The risk-reward ratio gets out-of-kilter.  Why risk money for  measly 3% return?  If investor/saver mind-set is to stuff cash into a mattress, lowering interest rates won’t fix that and in-fact may make it worse.

A Chinese student uses a simple story to relate that the world may be heading into an unavoidable deflationary spiral.  Throwing money at it (stimulus), artificially lowering borrowing costs (fed actions) and just pretending that the recovery is happening (Obama and Biden on T.V.) are not the solutions.  It is quite possible that deflation is the solution to the bubbles that governments have caused over the last decade.  If we don’t let them occur, they will anyway.. just worse.  If that’s the case, are you prepared?

Federal Reserve Struggling to Create Inflation

The specter of deflation is looming.  Federal Reserve chief Ben Bernanke, the President’s economic advisor Paul Volcker (remember him from the Carter years?), and Treasury’s Timmy Giehtner are all worried that the inflation they have been trying so hard to elicit isn’t coming fast enough – or at all.

While inflation is what happens when too many dollars are chasing too few goods, deflation is the opposite.

According to about.com, inflation is caused by:

  1. The supply of money goes up.
  2. The supply of other goods goes down.
  3. Demand for money goes down.
  4. Demand for other goods goes up.

So one could draw a conclusion about the inverse – that deflation is caused by (parenthesis mine):

  1. The supply of money goes down (hmm, let’s talk about this one).
  2. The supply of other goods goes up (inventory growth – CHECK!).
  3. Demand for money goes up (people want more money than is available – credit crunch – CHECK!).
  4. Demand for other goods goes down (commodity implosion, consumers not spending, etc – CHECK!).

Let’s break down the criteria:

Money Supply Declines While Demand for Money Increases

With all the money the government has been printing, shouldn’t it all have come out in the wash? Sure, except Obama’s financial reform has put lenders and creditors in the mood to just hang on to their money.  This post in the Telegraph illustrates just how quickly the money supply is being depleted:

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

The U.S. government has stopped tracking M3, they say because it’s too volatile (which the next graph will disprove).  I believe they just don’t want to have to address the fear that having to report on it would create.  Since they don’t track it, they don’t have to talk about or react to it.  At Now and Futures, they decided to track it themselves and the chart they produced shows that the pace at which the money supply is dropping is alarming at best:

M3 Money Supply

M3 Money Supply

There is also the issue of the availability of credit.  The sweeping regulations that the Obama administration has pushed for and gotten have paralyzed the credit markets.  Banks will only lend to the most credit-worthy and are being forced to hold historically high asset-to-credit ratios.  Small businesses and consumers can’t borrow even if they want to – in the case of small and medium businesses, they need to.  It just plain is getting harder to get the money we need.

Demand for money: up, supply down.

Supply of other Goods Rising vs. Demand for Goods Stays Low

There are both supply side and buy-side issues that are causing the over-supply issue.  Manufacturers built up inventories anticipating the “Recovery Summer” that the White House promised them and consumers aren’t buying.  According to Economic Populist, the consumer confidence index is taking a nosedive:

The Index now stands at 52.9 (1985=100), down from 62.7 in May. The Present Situation Index decreased to 25.5 from 29.8. The Expectations Index declined to 71.2 from 84.6 last month.

The latest GDP number showed a disconcerting decline in consumption.  The 2.4% overall number isn’t something that indicates much more than the economy treading water and certainly demonstrates weakening demand for our goods.  As the New York Times put it

Recent data suggests that consumers are using any extra cash they have to pay down debt or put into savings. That places a strain on an American economy that has become hugely dependent on consumer spending.

On Tuesday, the Commerce Department reported that Americans saved 6.4 percent of their after-tax income in June, in contrast to the years before the recession, when savings rates stood at 1 to 2 percent.

Last month, the Federal Reserve reported that consumer debt dropped by 4.5 percent in May, a $9 billion decline. It was the 20th consecutive month that figure has dropped. In 2007, consumer debt jumped by 5.7 percent or nearly $40 billion.

The weakening demand works its way down the supply chain down to even the most basic of commodities.  Gasoline stockpiles are rising because refiners ramped up production without an increase in demand.

Supply of goods: Up, demand: down.

So manufacturers have produced goods thinking the recovery has come (it didn’t), consumers have either decided to hang on to their cash or been unable to obtain credit from banks that want to hang on to theirs.  With our fractional reserve economy, lending creates money – if no one borrows, less money is created.  We now have too many goods with too few dollars chasing them: Deflation.

Why would the government want to create and grow inflation?  As Rand Paul puts it, “The government wants inflation because they can never pay this debt, so they look for a devalued currency because you pay back ten cents on the dollar it’s not as big a difficulty in paying off the debt.”  In Obama-speak, this gives the socialist-progressives more space within which they can enact huge government programs.  If the deficit gets too ridiculous, they get voted out and the progressive drunk-fest comes to an end.

Obviously, deflation does the opposite – our debt becomes impossible to pay back and the progressive elitists won’t have the money or political capital to complete the final crisis that would “fundamentally transform” America.

We know why the government is doing what they do.  Now.. what do we do?

Run, hide.  Ok.. none of those unless you’re being chased by a large carnivore.  During inflation, holding debt isn’t bad.  You have an asset that is holding its value while your money becomes worth less (hopefully not worthless).  So you’re house is worth $100,000, during the inflationary period, money becomes less worthy.  Your house does not.  If things level out with 10% inflation, you are the owner of a $110,000 dollar house the next year. You could sell the house and even though each dollar is worth 10% less, your house maintained it’s relative value so you get 10% more for it. The decline of the currency did not affect your house at all, just any cash you hold or things you purchase as new with it.

During deflation the opposite is true, debt is terrible (and even worse on depreciating assets: cars, electronics, etc).  You have a $100,000 house, you pay on it over time.  Once things level out.. you have a house worth $50,000 house but still have a $100,000 mortgage.  They have a cool term for that now: under water.  50% of your wealth has just drowned in your under water mortgage, and that’s the best situation.  Now you have to pay $100,000 (plus interest) for a $50,000 asset.  The real kicker is it will become much harder to get the dollars you will need to pay your mortgage in a deflationary environment (remember, money supply = down).   When deflation is on the horizon, get rid of debt.

Some will tell you gold is a hedge against deflation.. the same people that said it was a hedge against inflation: those who want you to help keep its price high while they sell it.  Gold is a terrible play during deflation.  You are buying a $100 coin at $100 today, in 6 months, it will be worth $50, but there won’t be very many dollars out there looking to buy your gold.  Now you’re stuck with something you can’t sell, can’t eat, and can’t use.. how does that work for you?  This holds true for any commodity.  Deflation means the buying power of cash is strengthened and the price of commodities and other goods drops.

As this Bloomberg.com post points out, deflation will put upward price pressure on bonds.  To keep borrowing costs low, they have to keep yields down and the Treasury has few tools left.  This will drive bond prices up and there interest rates lower.

“The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released yesterday about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”

If you agree that a bout of deflation is in the cards, and you want to invest some of it, put your money in .. well.. money: U.S. Treasuries.  The yields are terrible, but the price pressure will be dramatic and the U.S. government will create money if it has to in order to pay you.  If it hits, commodities (gold, oil, gasoline, wheat, etc) will take a serious hit – stay away from those.  Other than that, emerging market stock funds may be a play in anything other than a serious global deflationary trend.

If you are betting on the outright collapse of the currency, gold gets no better.  You can’t eat it, the supply of it is controlled under suspicious conditions  and it’s worthless in a barter system.  Look at the Confederate states during and after the civil war.. barter.. not gold was the method of exchange.

Being cash-rich and debt-free is the way to ride out a deflationary period.  You’ll have what everyone else needs – dollars.  Law of supply and demand puts you in the driver’s seat.

The Myths about the Myths of Social Security

For decades we’ve all known the Social Security was in trouble. No more!!  MoveOn.org has calmed the waters and published the truth – all while using an absolute fiction.

This post at the liberal site attempts to convince its readers that there is nothing wrong with Social Security – move on folks, nothing to see here:

Myth: Social Security is going broke.

Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.3 trillion surplus (yes, trillion with a ‘T’). It can pay out all scheduled benefits for the next quarter-century with no changes whatsoever.1 After 2037, it’ll still be able to pay out 75% of scheduled benefits–and again, that’s without any changes. The program started preparing for the Baby Boomers retirement decades ago.2 Anyone who insists Social Security is broke probably wants to break it themselves.

The source of footnote “1” is… yup, another liberally-slanted “news” site, new deal 2.0. To refute this myth about a myth, I submit – The 2009 Annual Report of the Board of  Trustees of the Federal Old-Age and Survivors  Insurance and Federal Disability Insurance Trust Fund (that’s the original name for the Social Security Trust Fund):

Under the long-range intermediate assumptions, annual cost will begin to exceed tax income in 2016 for the combined OASDI Trust Funds.

That just means they’ll dig into their piggy bank right?  Well, that piggy bank is not cash or any other easily liquid assets (stocks, money market funds, etc) – it’s government bonds.  In the event of Social Security running a deficit, they will have to cash in their government bonds, and their holdings aren’t small.  One must also realize that in order for the government to pay those bonds, they will have raise taxes, cut spending or both.  The exact same thing as if dealing with a deficit crisis.

I am not sure how they even throw this next one out with a straight face .. but hey, job security for me.

Myth: We have to raise the retirement age because people are living longer.

Reality: This is red-herring to trick you into agreeing to benefit cuts. Retirees are living about the same amount of time as they were in the 1930s. The reason average life expectancy is higher is mostly because many fewer people die as children than did 70 years ago.3 What’s more, what gains there have been are distributed very unevenly–since 1972, life expectancy increased by 6.5 years for workers in the top half of the income brackets, but by less than 2 years for those in the bottom half.4But those intent on cutting Social Security love this argument because raising the retirement age is the same as an across-the-board benefit cut.

Checking the footnote source “3” .. The Center for Economic and Policy Research – A progressive economic “think-tank”.  Wow, what right-wing nut job counter-source will I use… uh, I know!  That whacked-out tea party infested non-partisan .. Congressional Budget Office :

Once the baby-boom generation retires, the portion of the nation’s output that the federal government will spend on Social Security will increase by more than 50 percent–from 4.2 percent of gross domestic product (GDP) in fiscal year 2001 to an estimated 6.5 percent in 2030.<

This is just too easy.
Next up… a statement that is only true if you believe the first two falicies:

Myth: Benefit cuts are the only way to fix Social Security.

Reality: Social Security doesn’t need to be fixed. But if we want to strengthen it, here’s a better way: Make the rich pay their fair share. If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.5 Right now, high earners only pay Social Security taxes on the first $106,000 of their income.6 But conservatives insist benefit cuts are the only way because they want to protect the super-rich from paying their fair share.

But heck, this has been so fun, let’s see who this source “5” is.  The Economic Policy Institute which has a board of directors listing that reads like a collection of union leadership, socialists,and at a minimum heavily left-leaning academicians.

  • Andy Stern – SEIU Founder
  • Linda Sanchez (D-CA 39)
  • Ed Mcelroy – American Federation of Teachers
  • Ron Gettlefinger – United Auto Workers
  • R. Thomas Buffenbarger, Internation Association of Machinists & Allied Workers
  • Anna Burger, SEIU and “Change to Win” (Organized labor group)

I could go on, but you get the point, another progressive site sourced as if it’s a balanced credible source.

Next up, something we’ve all known for decades:

Myth: The Social Security Trust Fund has been raided and is full of IOUs

Reality: Not even close to true. The Social Security Trust Fund isn’t full of IOUs, it’s full of U.S. Treasury Bonds. And those bonds are backed by the full faith and credit of the United States.7 The reason Social Security holds only treasury bonds is the same reason many Americans do: The federal government has never missed a single interest payment on its debts. President Bush wanted to put Social Security funds in the stock market–which would have been disastrous–but luckily, he failed. So the trillions of dollars in the Social Security Trust Fund, which are separate from the regular budget, are as safe as can be.

I cringe at the thought, but yeah.. lemme go check this apparently omnipotent, clarifying and surely factual source.  Hey look, it’s Andy Stern and his union cronies at Economic Policy Institute again.  Now why would organized labor have an interest in Americans feeling secure about Social Security and also getting the rich to put more in than they will ever get out?  Probably because his union workers are going to get the shaft when they realize how badly unions have under-funded their pensions.  If the government can’t bail him out.. he’s looking at the collapse of organized labor.  Now to debunking the myth.. uh check the commentary under the first myth and the next one.. this is just a chain of lies where you tear down one and rest fall upon the weak foundation that first lie set.

I hope I don’t even have to post a rebuttal to this one, because if you’ve understood the rest of the article, it’s unnecessary:

Myth: Social Security adds to the deficit

Reality: It’s not just wrong — it’s impossible! By law, Social Security funds are separate from the budget, and it must pay its own way. That means that Social Security can’t add one penny to the deficit.1

The source, New Deal 2.0 .. again.  As if the actual “New Deal” hasn’t actually perpetuated a deficit crisis, the new version is trying to say that not only did Social Security not cause the issue, it’s actually not even possible.  The first rebuttal should give you enough, but if not.. lemme try again.  During years of excess, the Social Security trust fund does not get to hang on to its excesses.  It has to put that money into government bonds and hold those instead.  Should they run into deficit, they will call on the government to give them cash for the bonds.  Since our government doesn’t have any free cash due to deficit spending… they’ll have to borrow money from somewhere else, raise taxes or cut spending – exactly the same actions as excessive debt.  Because the trust fund gave the government money and it received bonds in return, it holds debt of the U.S. government (I said debt right?).  The treasury got money from someone on a loan basis to cover costs it cannot fund on its own.  Most of us call that operating at a deficit.  Social Security absolutely enables our government’s deficit spending and if they call on the money in those IOUs, it will just get tacked-on.

So MoveOn.org posts an article based on the facts of union-run, far-left, liberal nut-job organizations – gave me something to do, but could really have used a challenge.

GAO:TARP Has Done Two Things, “Jack and Squat”

In the GoverGAO Logonment Accounting Office’s October “Report to Congressional Committees” on TARP, it is apparent that TARP’s success.. isn’t that apparent.

The report recommends filling important positions with permanent staff instead of the consultants currently manning them, but what really stands out is when the GAO attempts to quantify the success of the program.  The report states that, “isolating and estimating the effect of TARP programs remains a challenging endeavor… and that a number of anticipated effects of TARP have not materialized”. Billions of dollars of taxpayer money and not only can’t we estimate any effects, the GAO flat out says that the positive effects we expected.. never happened.
The report goes on to show that TARP is seemingly operating with little oversight, no transparency, and next-to-zero measurements of it’s success or failures.  This sounds eerily like cash-for-clunkers where dealers were unable to get rebate money due to an understaffed and disorganized government program.

Almost $364 Billion has been disbursed to financial agencies and those agencies aren’t using the money to make more loans, their shoring up their financials and buy their warrants back from the government.  Surprise, I know.  From that money, the government has receives a little over $9.2 Billion in dividend and other securities payments.  Unfortunately, since the Treasury had to borrow the money (deficit spending) to give it to the financial institutions and that borrowed money is funded by Treasury instruments that the government pays interest on, no one can figure out if any of that $9 Billion was a profit, a loss or a wash.

Just wait until health care is funded, implemented and measured this way.  We’ll hate it, not know how much it costs, and have no clue how to fix it..  just like TARP.

Administration Says Its Saving Homes, Oversight Report Says Otherwise

The Congressional Oversight Panel published a report on October 9th assessing the effectiveness of “foreclosure mitigation efforts” for the previous six months.  Many in the media are focusing on how the administration’s foreclosure efforts are failing.  Just reading the executive summary, I was just as troubled by who these efforts are failing.  The first paragraph grabs the attention with, “The combination of federal efforts to combat the financial crisis coupled with mortgage assistance programs makes the taxpayer the ultimate guarantor of a large portion of home mortgages“.  Congratulations, even though you and I knew better than to get into real-estate investing during an obvious bubble.. the government forced us into it and we’re about to take a bath.

On a positive note, the executive summary does say that it is likely that the benefits will eventually outweigh the costs to the taxpayer.  The initiative that is expected to bring about these benefits is Making Homes Affordable (MHA) which is made up of two programs – the Home Affordable Refinance Program (HARP) and Home Affordable Modification Program (HAMP).  HARP focuses on homeowners that are in-good-standing on their home loans but the mortgages are valued higher than the actual value of the home.  HAMP focuses on those that can no-longer afford their mortgages and keeping them out of foreclosure.

HARP reconfigures the loans into stable, affordable loans and has performed almost 96,000 mortgage reconfigurations or refinances.  It is difficult to prove a negative, just as with the “jobs saved or created” angle the administration takes on the stimulus plan.  Here we have another.  Did we actually prevent any foreclosures or just guarantee a more-favorable loan for people that bought too much house?  The report does not even try to compute how many homes loans were saved or prevented from being bad.  Probably because it can’t be done.

HAMP subsidizes the mortgage payments of soon-to-be-foreclosed debtors with taxpayer dollars.  This mortgage modification program reconfigured 1,711 mortgages and put another 362,348 other borrowers into a 3-month trial program.  The U.S. Treasury expects that it will spend almost $43 billion of the $50 billion TARP funds for mortgage modification.  This amount would support about two-and-a-half million loan modifications.  Unfortunately, current estimates are for closer to 12 million foreclosures will occur which means that, “the remaining losses will be massive”.

The report stresses three main reason why these favored programs of the Obama administration may not succeed.  Size, Scope and permanence.

First, the scope of the program will limit it from helping the most-at-risk mortgages.  The eligibility requirements will not allow adjustable rate mortgages or interest-only loans to be subsidized by taxpayer money.  HAMP is also not designed to help with non-payment of mortgages due to unemployment – the main reason for many home-losses in these economic times.  The whole program is built around fixing subprime mortgages, and even the report states that it’s so “six-month-ago”.  Nothing in this bill deals with the actual mortgage crisis that Americans are dealing with.

After scope, the report explains how the size of the program is also insufficient.  Foreclosure starts are coming twice as fast as HAMP modifications and many homeowners that would qualify for the program are losing their houses while waiting for the program to catch up.  This is similar to the cash-for-clunkers issue of too many promises for too little capability.  The car dealers could decide to stop accepting deals under that program to avoid cash-flow disasters.  These homeowner’s only choice is to lose their homes.  Even once the program catches up, it will only be able to service 50% of the Treasuries own estimate for home foreclosures.

Lastly, the Congressional Oversight Panel’s report addresses permanence.  Will these modifications actually result in the prevention of a home loss?  Only a small portion of the modifications done under HAMP have resulted in permanent stable mortgages.  The panel suggests that after massive infusions of taxpayer capital, these loans default anyway.  The report states that real results of these programs will be, “that foreclosure is delayed, not avoided”.

There is some discussion of negative-equity.  If the housing market continues depressing or deflating, more people may consider walking away from their mortgages as there would be no inherent value in the home.  These wealth-lost scenarios could increase foreclosures well-beyond even the pessimistic estimates of the U.S. Treasury.  If this is added into what the report calls “payment reset shock”, due to high loan-to-value adjustable loans, it’s obvious the government has no-chance at making any real dent in the real-estate crisis.

What the report doesn’t consider is the massive de-leveraging that is occurring in the American economy.  In the Conservative Daily News article entitled, “Going Galt Without Realizing“, it is apparent that between the government’s willingness to create money for these mortgage-subsidization programs and American’s lack of willingness to continue borrowing to consume, our fractional reserve systems could add another last straw.  Bank reserves will dwindle as fewer and fewer Americans borrow for homes and autos either because they can’t (due to recent foreclosure or a barely-affordable mortgage) or because this crisis has caused a change-in-behavior towards reduced indebtedness.

Whether we look back at cash-for-clunkers or at this initiative, it becomes obvious that the administration is unable to judge the size, scope, permanence or effectiveness of the programs it supports.

Transparency Needed Into the Federal Reserve

I realize that I would have to wait in a fairly long line to call Ron Paul a paranoid, old-thinking, isolationist psycho, and I’d gladly take the wait just to have the opportunity.  But, Paul has been pushing for a congressional audit of the Federal Reserve for more than two decades and he might just get it now.

Republicans, Libertarians, and Democrats alike are all now calling for a look into the way-too-secret moves of the Federal Reserve Board and Barney Frank, Chairman of the House Financial Services Committee, has now thrown in his support for the idea.

The calls for transparency are coming from every corner considering the undisclosed emergency lending that the Fed has performed during this financial crisis.  Federal Reserve operations have resulted in trillions of dollars of debt placed firmly on the shoulders of American taxpayers and we’re not sure what we got… if anything.

In an article at newsblaze.com, the author states that the Federal Reserve has intervened at least 34 times in the financial marketplace for a cost of at least $1.8 trillion.  What we don’t know is who or for what the $700 billion for the Treasury, $300 billion for housing rescues, $200 billion to banks, or $50 billion for “exchange stabilization”.

Ron Paul is certifiable.  But on this one, he may have gotten it right.  “Even a blind squirrel finds a nut some days”.