US deficit of 11.1 Trillion acording to corporate accounting

[TheDarkling]

What happens if China and Japan starts to strong-arm the US over some issue via the dollar threat?

I would find the irony hilarious.

[Admiral Valdemar]

I don't see how a nation, even one as big as the US, could make that much more of a debt mountain in a year without resorting to burning trucks filled with $100 notes.

While no one will claim the debt (the image I always have of international bailiffs running off with carriers, skyscrapers and whole towns is too funny), it doesn't mean the US is exempt from the laws of economics. There will be consequences eventually and the Republicans seem to enjoy tempting fate with their ass backwards economical ideas.

[Tzeentch]

http://www.scrive ner.net/2004/12/is-social-security-trust-fund-worth.html
is of particular note.

here's an article that directly responds to the opening article:

The Administration has also been throwing around a particularly hysterical statistic-that Social Security faces ten to eleven trillion dollars in "unfunded liabilities."

That figure is nothing but the total long-term payout that the government expects to pay retirees. But we don't calculate the rest of the budget that way. The Pentagon, for instance, spends about $400 billion a year. The Pentagon's 75-year "unfunded liability," at that rate, is $30 trillion dollars.

The reason that we don't calculate budget that way, of course, is that we know government will keep collecting tax revenues, and use them to pay its obligations.

The article I linked to is quite interesting; it points out that the government has been screaming crisis about social security for a decade because it persistantly underestimates economic growth and therefore payroll tax revenue, and they've kept pushing the "crisis date" back as actual revenue figures come in. In 1997, the crisis was in 2029; it's currently expected in 2052. In seven years, the system gained 23 years of life. Not much of a crisis.

Also of interest:

In June, the bipartisan Congressional Budget office used more realistic assumptions about economic growth. CBO puts the first shortfall year at 2052, not 2042, and it projects Social Security's 75-year shortfall at only about four-tenths of one percent of Gross Domestic Product. Currently, that's just over $40 billion a year, or one-fifth of the revenues that the Bush administration gave up in tax cuts for the wealthy.

Simply restoring pre-Bush tax rates on the richest one percent of Americans could bring the Social Security system into balance indefinitely, without reducing promised payouts by one penny.

Now here's why privatization is a terrible idea (from a funding standpoint; there's plenty of other things wrong with it). The government isn't going to cut loose retirees who've been paying into Social Security all their lives when they change systems. They're going to have to keep making the social security payments to the current crop of seniors. Only, since we'll no longer be collecting payroll taxes, we'll need to go several trillion more into debt to cover the gap. Oops, I guess privatization isn't a money-saving solution after all.

If the economy does well, we'll rake in enough payroll tax money to keep social security going fine. IF the economy does poorly, then private accounts will tank and screw over the people who hold them. Can't have it both ways.

Their populations are in serious decline, I think Italy is about to keel over with France in quick pursuit. It's late, but I'll see what I can do for you about a link tommorow.

Italy has a right-wing government. It would hurt Tharkun's case against leftist governments rather than help it if it is indeed true that Italy is going to crash.

[Straha]

The Administration has also been throwing around a particularly hysterical statistic-that Social Security faces ten to eleven trillion dollars in "unfunded liabilities."

That figure is nothing but the total long-term payout that the government expects to pay retirees. But we don't calculate the rest of the budget that way. The Pentagon, for instance, spends about $400 billion a year. The Pentagon's 75-year "unfunded liability," at that rate, is $30 trillion dollars.

The reason that we don't calculate budget that way, of course, is that we know government will keep collecting tax revenues, and use them to pay its obligations.

There's a difference between the Pentagon and Social Security, namely that the money we're going to pay (ignoring inflation) the pentagon year by year doesn't change. Whereas we're going to be throwing more money the Social Security sink every year in the near future onwards. Why? Two-fold, firstly the amount we pay in Social Security is based on average wage earnings (before you start screaming, wages increase faster than inflation, though I will admit that a good chunk of this increase would be due to inflation) and secondly because in the near future a proportionatly higher number of people are going to be retired, and that is going to increase year after year after year...

In June, the bipartisan Congressional Budget office used more realistic assumptions about economic growth. CBO puts the first shortfall year at 2052, not 2042, and it projects Social Security's 75-year shortfall at only about four-tenths of one percent of Gross Domestic Product. Currently, that's just over $40 billion a year, or one-fifth of the revenues that the Bush administration gave up in tax cuts for the wealthy.

Simply restoring pre-Bush tax rates on the richest one percent of Americans could bring the Social Security system into balance indefinitely, without reducing promised payouts by one penny.

Funny thing, I did some research and found that the GAO (general accounting office) did its own investigation into the affair. And found that in 2045 the debt owed on social security will equal 20% of the GDP. That's equal to the entire government. As an interesting tangent the study (found here) was supposed to be a seventy five year study, but they cut it short after that because projections saying that the government will effectivley be no more are 'implausible.'




I'll get to the rest of your post in a couple minutes....[/url]

[Straha]

Now here's why privatization is a terrible idea (from a funding standpoint; there's plenty of other things wrong with it). The government isn't going to cut loose retirees who've been paying into Social Security all their lives when they change systems. They're going to have to keep making the social security payments to the current crop of seniors. Only, since we'll no longer be collecting payroll taxes, we'll need to go several trillion more into debt to cover the gap. Oops, I guess privatization isn't a money-saving solution after all.

Except if they plan ahead for this and have ways to cover it. I know, for instance, the (ignobly named) Cato institute has a plan out there, as do others and that our beloved Bush hasn't proposed any specific plans yet. I'm way too lazy to get exact links for this today, but this has been thought out by people brighter than all of us over here at SDnet put together.

Their populations are in serious decline, I think Italy is about to keel over with France in quick pursuit. It's late, but I'll see what I can do for you about a link tommorow.

Italy has a right-wing government. It would hurt Tharkun's case against leftist governments rather than help it if it is indeed true that Italy is going to crash.

Except it's not just Italy, it's all of Europe. Germany, France, Sweden, the Netherlands, Spain, all of them are facing the same thing, Italy's the convenient one because it's coming a lot sooner over there in the land of Augustus.

[TheDarkling]

Except it's not just Italy, it's all of Europe. Germany, France, Sweden, the Netherlands, Spain, all of them are facing the same thing, Italy's the convenient one because it's coming a lot sooner over there in the land of Augustus.

Not all of those countries have a declining population, they have aging populations but that isn't the same thing.

France, Sweden and Germany are stable on population (a small decline or small increase is predicted depending upon who you ask), the Netherlands is predicted to have a minor increase whilst Spain is predicted to lose 20% of its population over the next 50 years and Italy 25% over the same time period.

[Straha]

Except it's not just Italy, it's all of Europe. Germany, France, Sweden, the Netherlands, Spain, all of them are facing the same thing, Italy's the convenient one because it's coming a lot sooner over there in the land of Augustus.

Not all of those countries have a declining population, they have aging populations but that isn't the same thing.

France, Sweden and Germany are stable on population (a small decline or small increase is predicted depending upon who you ask), the Netherlands is predicted to have a minor increase whilst Spain is predicted to lose 20% of its population over the next 50 years and Italy 25% over the same time period.

Bah, my mistake sorry. I was confusing aging with diminishing. Sorry.

For matters of the debate though it both do accomplish the same thing...

[Alex Moon]

Anyone else think Japan or China might start selling off bonds in the near future? Suck to be the dollar then.

Not if you are in an export industry.

China and India won't be selling off bonds anytime soon. They need a strong dollar to protect their export sectors.

What happens if China and Japan starts to strong-arm the US over some issue via the dollar threat?

It's not a very good threat. China keeps it's Yuan tied to the dollar to keep it artificially low for the reason stated before: it's export sectors depend on it. The US economy could handle a low dollar, the East Asian economies would have a much rougher time.

[tharkûn]

They are? An increase equivalent to roughly the entire GDP in just one year? That does suggest that someone piled on rather considerable extra liabilities in a short time, does it not? Can we just chalk this up to the size of the country in question when it was so much lower a year earlier, or are you saying that this kind of annual increase is typical?

No it is a 1.3% of GDP increase per year. I'd bet on the majority of the accounting "windfall" being due to how the prescription drug benifit is calculated. Think about how much of the Canadian budget goes into healthcare, now imagine that you across the board increased that budget by 10% or whatever it happens to be. I'd be astonished if it wasn't close to this type of liability.

Of course there are the mundane things that make this figure grow, things like increased life expectancy, increased medical costs - more cutting edge surgery is a double whammy, the decrease in smoking, the increasing rates of obesity, etc.

Those are impressive numbers for medicare, but I'd like to see evidence for the social security crisis. I've done some research on the subject, and from what I can see, it's an imaginary problem created and marketed by ideological proponents of privatization.

As a social welfare program, social security is run ass backwards.

As a mandotary retirement investment program it is a Ponzai scheme.

When social security debuted you had at least a 10:1 worker to retiree ratio going for you. That number is plummeting and won't stabilize much above 2:1 if even that high. The big problem is all of those "surpluses" that social security has been running have been used to buy US govt debt which is getting inflated away and will wreak some havoc when the government issues new bonds to pay out.

I don't know about japan, they've always been a little screwed up, but the european socialist states are doing pretty well for themselves. I'd be interested to see a link prophecying doom for them before we crash.

US government debt stands at 30 some percent of GDP, it is projected to top off at around 40% of GDP in 2005. Presently France and Germany are in the ballpark of 60% debt burdens. The entire Eurozone carries a debt burden in the 60%'s. Japan outshines the rest of the west up around 120%.

So first off the US is in hock, but is a lot less in hock than other western nations.

Next up the US has a growing population which several European states lack. The aging of the population is less pronounced in the US than in Europe.

So the reasons why the US is set to go tits up are more pronounced in Europe. Smaller populations, higher demographic burdens, and all facing the global pressures of cheap foreign labor.

Lastly you have the higher tax rates. Assuming for the moment that all states are to the left of T* on the Laffer curve (essentially we assume that increased taxation results in increased government revenue), European states have a lot less room to increase their taxation rates than the US. Going from a 30 to a 33% tax rate is much less painful than going from a 50 to a 53%. Once one includes the impact of higher taxes on economic growth things look decidedly bad for Europe.

Higher debt burdens, greater demographic problems, and less room to increase taxes to make up the shortfall. Unless things change France and Germany will be screwed first. I could be wrong, but I think Canada is the only major western nation not in worse fiscal shape than the US.

Oh, yes. Then we will just have all the debt we've currently racked up...

So?

As long as the economy grows faster than the interest on the bonds, which are at ludicriously low levels right now, the debt shrinks. Essentially if the debt grows by say 2% per annum and the economy grows by say 3% then the debt is a non-issue. Historically the economy has beat the debt under most timeframes. Even during high interest periods the debt can be shrunk, the 70's did a wonderful job of that ... but paid the price the inflation.

Unless, of course, people save their tax cut money instead of investing it in our economy, because making an investment looks like a dumb idea in what appears to be a country being managed into the ground...

What in hell do you think the bank does with money you "save"? They are paying you interest so they have to have made some type of investment. That could be things like mortgages - but then the bank dumps the money into the realtor's hand. Or things like business loans - and then the bank dumps money into corporate investment. Unless your bank buries the money in the garden or the interest rate hits 0%, the money always goes back into the economy. This BS about saving money to remove it from the economy is getting old; this should be covered in any elementary economics course and I know I've explained this crap mutiple times. THINK ABOUT IT. The bank pays you for privilege of holding your money, they aren't a charity so they have to do SOMETHING with it to give you your return.

Piss and moan about velocity. Fine. Piss and moan about rate of return. Fine. Piss and moan about consumption vs investment. Fine. But for crying out loud stop repeating this idiotic BS about pulling money out of the economy through savings.

[tharkûn]

The article I linked to is quite interesting; it points out that the government has been screaming crisis about social security for a decade because it persistantly underestimates economic growth and therefore payroll tax revenue, and they've kept pushing the "crisis date" back as actual revenue figures come in. In 1997, the crisis was in 2029; it's currently expected in 2052. In seven years, the system gained 23 years of life. Not much of a crisis.

Oh please I read the arguement about stock market panics. You had them predicted in the 1900 campaign seasons, in the 1910's and in the 1920's. Eventually the experts were right and one did happen. The "crisis" comes in two parts:
1. When social security stops buying US government debt.
2. When social security runs out of debt to redeem to make payouts.

The current system is broken.

Now here's why privatization is a terrible idea (from a funding standpoint; there's plenty of other things wrong with it). The government isn't going to cut loose retirees who've been paying into Social Security all their lives when they change systems. They're going to have to keep making the social security payments to the current crop of seniors. Only, since we'll no longer be collecting payroll taxes, we'll need to go several trillion more into debt to cover the gap. Oops, I guess privatization isn't a money-saving solution after all.

Do you have any idea what a lifetime return on social security gets these days? For the money you pay vs the money you get out it is among the WORST investments you can make. By a huge margin any other investment will perform better.

Well what about those poor schlubs who are unlucky or stupid enough to beat the odds and lose? Frankly it would do better to simply expand the actual welfare system for those who fail and to get some type of return on the money.

As far as money saving? Please numerous corporations have rehauled pension schemes that are remarkedly akin to social security by doing just that. Rather than continue investing at zero return idefinately you take a short term penalty and invest in long term growth. Every college kid who has ever gone into debt to pay for a degree knows the logic behind this.

Currently, that's just over $40 billion a year, or one-fifth of the revenues that the Bush administration gave up in tax cuts for the wealthy.

Except that the Bush tax cuts are going to be proportionally lessoned once the baby boomers stop earning wages and go onto the tax rolls.

Simply restoring pre-Bush tax rates on the richest one percent of Americans could bring the Social Security system into balance indefinitely, without reducing promised payouts by one penny.

Assuming one ignores higher order effects, oh wait that is what got us here.

If the economy does well, we'll rake in enough payroll tax money to keep social security going fine. IF the economy does poorly, then private accounts will tank and screw over the people who hold them. Can't have it both ways.

Pay as you go systems suck. You need an increasing base to pay out or somebody has to get less out than they put in. If this is a retirement investment then people should get back out at least what they put in. If this is a welfare program then everyone shouldn't automatically collect and the ass backwards regressive payroll taxes should be the first thing tossed.

Taxation weighted against the poor for a welfare program is ludicriously stupid.

Italy has a right-wing government. It would hurt Tharkun's case against leftist governments rather than help it if it is indeed true that Italy is going to crash.

Right wing government? So does France. So does Japan. Both Chirac and Koizumi can be found on the right half of their respective political spectrums. Italy currently has a rightist government, however they have had friggin revolving door going in the government.

This isn't about right or left; the problems I'm talking about are GENERATIONAL and have flowered under primarily lefist oversight, such as France and under primarily rightist oversight, such as Japan. These type of social programs are ludicriously expensive no matter how you slice it. It takes inordinate effort to do it right. The best country on the books appears to be Canada. Argueably the US is next and most likely the UK following.

Nor is the solution one size fits all. Canada can tank her military expenditures dramatically without having the same global impact as the US. The US, Canada, and the UK are far more immigrant friendly than some European countries and just about anywhere is better than Japan. Tony Blair has a far tighter grip on the political whip than Martin, Chirac, Schroeder, or Bush will likely ever have.

[PainRack]

It's not a very good threat. China keeps it's Yuan tied to the dollar to keep it artificially low for the reason stated before: it's export sectors depend on it. The US economy could handle a low dollar, the East Asian economies would have a much rougher time.

Its not the dollar per se. Its the fact that China owns millions, probably billions of dollars in US liabilities. If it ever decides to sells them off because the US is a risk factor(ie, because of debt increase) and purchase something more profitable....... well it should be bad.

There were several articles on chinese newsites before 9/11 about economists arguing over whether it was possible for China to continue purchasing US treasuries, when the US is investing in overseas funds because of the low returns. After all, China herself needs a hefty ROI to pay her own aging populace and social budget.

[Tzeentch]

There's a difference between the Pentagon and Social Security, namely that the money we're going to pay (ignoring inflation) the pentagon year by year doesn't change. Whereas we're going to be throwing more money the Social Security sink every year in the near future onwards. Why? Two-fold, firstly the amount we pay in Social Security is based on average wage earnings (before you start screaming, wages increase faster than inflation, though I will admit that a good chunk of this increase would be due to inflation) and secondly because in the near future a proportionatly higher number of people are going to be retired, and that is going to increase year after year after year...

If wages keep increasing, then on average we'll be collecting more than we're paying out. This seems like a good thing for pay-as-you-go social security. I'm not sure what your point is...

As for your second point, the baby boomers who are currently on the cusp of retirement are actually a hump on the graph rather than a general trend. Our generation is smaller than the one before it; that doesn't mean that from now on, every generation will be smaller than the one before it, and certainly not by the same margin. This is one of the reasons why privatizing now is a problem. The fed would be stuck paying for the retirement of the massive boomer generation, without the aid of the smaller current workforce; even if the current youth couldn't cover everything, it's better than nothing.

Funny thing, I did some research and found that the GAO (general accounting office) did its own investigation into the affair. And found that in 2045 the debt owed on social security will equal 20% of the GDP. That's equal to the entire government. As an interesting tangent the study (found here) was supposed to be a seventy five year study, but they cut it short after that because projections saying that the government will effectivley be no more are 'implausible.'

This is from 2001, and superceded by more optimistic predictions made with more and more current data; it's both out of date and answered by the (current) article I linked to.

Except if they plan ahead for this and have ways to cover it. I know, for instance, the (ignobly named) Cato institute has a plan out there, as do others and that our beloved Bush hasn't proposed any specific plans yet. I'm way too lazy to get exact links for this today, but this has been thought out by people brighter than all of us over here at SDnet put together.

Bush has carefully avoided putting out any specifics for his plan because there aren't viable proposals. I'll bet good money that our libertarian friends over at Cato (now that I think about it, it's bizzare that they're named after a censor) have a proposal that involves either a) massive, politically unviable benefit cuts or b)magical invisible market forces, or both. Paul O'Neill left the Bush administration because he wanted to privatize social security, and knew that with the Bush tax cuts there would be no money to do so. Since O'Neill left, Bush has spent a whole lot more; social security privatization as a panacea while we're trillions in debt is a pipe dream.

Except it's not just Italy, it's all of Europe. Germany, France, Sweden, the Netherlands, Spain, all of them are facing the same thing, Italy's the convenient one because it's coming a lot sooner over there in the land of Augustus.

Like I said, I'd still like to see some expert predicting a crash among EU member states. An aging population doesn't instantly damn any economy. Besides, some of them have private account programs in addition to social security, which I support, and which the democrats will too, if they're smart.

I'll deal with Tharkun this evening.