The Elephant in the Room

acpme_IHB

acpme_IHB

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this commentary by david walker, the former comptroller general and head of the GAO, highlights what i've always felt was the larger problem that america faces -- $53 trillion dollars -- the present value of the federal govt's outstanding obligations for entitlement programs such as SS and medicare. the current financial crisis is like worrying about this month's minimum payment on your credit card balance while you have a looming mortgage reset and no prospects for more income anytime soon.



apparently we've figured out a "solution" for the banking problem, but what happens when the bank's bank goes insolvent?



<a href="http:// http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html">http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html</a>
 
[quote author="acpme" date=1223439730]this commentary by david walker, the former comptroller general and head of the GAO, highlights what i've always felt was the larger problem that america faces -- $53 trillion dollars -- the present value of the federal govt's outstanding obligations for entitlement programs such as SS and medicare. the current financial crisis is like worrying about this month's minimum payment on your credit card balance while you have a looming mortgage reset and no prospects for more income anytime soon.



apparently we've figured out a "solution" for the banking problem, but what happens when the bank's bank goes insolvent?



<a href="http:// http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html">http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html</a></blockquote>


The Federal Reserve has an infinte balance sheet, and now that the Fed can pay interest on reserves, it is no longer limited by Congresses approval of the Treasury debt.
 
Does this mean the FED will be able to print more money to take care of the obligations?

If more money is printed, won't the US dollar depreciate vs. foreign currency?



Because the world seems to be in the same boat, does it matter that the USD depreciates?

Won't Euro, British Sterling, RMB depreciate as well due to their failing economies?



If everyone is depreciating at the same rate, isn't the net effect 0.
 
[quote author="acpme" date=1223439730]this commentary by david walker, the former comptroller general and head of the GAO, highlights what i've always felt was the larger problem that america faces -- $53 trillion dollars -- the present value of the federal govt's outstanding obligations for entitlement programs such as SS and medicare. the current financial crisis is like worrying about this month's minimum payment on your credit card balance while you have a looming mortgage reset and no prospects for more income anytime soon.



apparently we've figured out a "solution" for the banking problem, but what happens when the bank's bank goes insolvent?



<a href="http:// http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html">http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html</a></blockquote>


Medicare is certainly an issue and one that will need to be dealt with sooner rather than later. I believe that it is "current funded" with an appropriation each year rather than having the money from paychecks set aside.



With respect to Social Security, it is not insolvent and is not predicted to be until somewhere around 2050. The problem with Social Security is that during (I think) the Reagan administration, the law was changed to allow the US to dip into the Social Security trust to balance the budget. Remember when everyone was mocking Al Gore about the "lockbox?" That argument related to his desire to not allow the US to balance its books with money from the SS trust and to keep it safe for those who pay in to SS.
 
[quote author="awgee" date=1223439995][quote author="acpme" date=1223439730]this commentary by david walker, the former comptroller general and head of the GAO, highlights what i've always felt was the larger problem that america faces -- $53 trillion dollars -- the present value of the federal govt's outstanding obligations for entitlement programs such as SS and medicare. the current financial crisis is like worrying about this month's minimum payment on your credit card balance while you have a looming mortgage reset and no prospects for more income anytime soon.



apparently we've figured out a "solution" for the banking problem, but what happens when the bank's bank goes insolvent?



<a href="http:// http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html">http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html</a></blockquote>


The Federal Reserve has an infinte balance sheet, and not that the Fed can pay interest on reserves, it is no longer limited by Congresses approval of the Treasury debt.</blockquote>


Except printing money spikes inflation, depreciates the dollar which further spikes inflation and both the major entitlement (welfare) programs are indexed to inflation.





Oh and of course, the often selfish boomers will soon join the largest self interest voting block in the country. AARP...





The future of the country, IMHO, is written in our past. To see the future, just look at the results the boomers had on their own families.
 
[quote author="zubs" date=1223449890]Does this mean the FED will be able to print more money to take care of the obligations?

</blockquote>
I guess you can call them obligations if you want, but yes, it does mean the Fed can print more.



[quote author="zubs" date=1223449890]

If more money is printed, won't the US dollar depreciate vs. foreign currency?

</blockquote>


The dollar will most likely devalue, but that is not the same as depreciating against foreign currency.



[quote author="zubs" date=1223449890]



Because the world seems to be in the same boat, does it matter that the USD depreciates?



</blockquote>


If you are still getting paid the same amount, but it costs you twice as much for a tank of gas, does it matter? If the price of a barrel of oil goes up in Euros and in dollars, does it matter? Personally, I care more about what I have to pay then I care about what Mr. Frenchy has to pay, and it does not make me feel any better knowing that he has to pay more also, nor does it help me make my house payment.



[quote author="zubs" date=1223449890]



Won't Euro, British Sterling, RMB depreciate as well due to their failing economies?



</blockquote>


Yes. Well, maybe not the renminbi, (sp?), and the yen because China and Japan have a trillion or so dollars that they can use to buy commodities.



[quote author="zubs" date=1223449890]



If everyone is depreciating at the same rate, isn't the net effect 0.</blockquote>


Only if the only thing you buy is foreign currencies, but if you buy milk, eggs, lug nuts, toilet paper, dog food, etc. the net effect is less buying power with your wages.



The dollar's real strength is not based on the USD index or a basket of currencies. It is strong or weak depending on what you can buy vs. your wages.
 
[quote author="EvaLSeraphim" date=1223462959]

With respect to Social Security, it is not insolvent and is not predicted to be until somewhere around 2050. The problem with Social Security is that during (I think) the Reagan administration, the law was changed to allow the US to dip into the Social Security trust to balance the budget. Remember when everyone was mocking Al Gore about the "lockbox?" That argument related to his desire to not allow the US to balance its books with money from the SS trust and to keep it safe for those who pay in to SS.</blockquote>


yup, payroll taxes collected each year are still in excess of outgoing payments, building up the SS trust fund. the latest projections are expenditures outweigh tax receipts in 2017 and we begin dipping into the fund. 2042 is when the surplus will be depleted, although the worse present economic conditions get, the quicker those dates move up.



by dipping into the lockbox, the fed govt basically is collecting SS tax, spending it, then raising taxes or printing money to repay SS. at some point systems operating in this manner blow up, whether they're ponzi investment schemes or housing bubbles.
 
[quote author="zubs" date=1223449890]If everyone is depreciating at the same rate, isn't the net effect 0.</blockquote>


Absolutely, it's the "Zero Sum theory"
 
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