Did Ben dust off one of Alan Greenspan's recent speeches on Social Security? Maybe Ben should go back to 1983 to see what Alan and President Reagan were sensibly saying in regards their Soc. Sec. reform.
i've been favorably disposed about bernake until now, too, but if the price of working for the bush administration is to tell lies about social security and he's willing to pay it, then the hell with him.
Bernanke's not sure how the housing market slowdown is going to play out, but he's confident he understands Social Security? Did I read this correctly?
Why is the housing Market so hard for him to figure out? Why did he not predict housing slowdown would effect GDP number? I mean seriously, is it just me or does it not seem that hard to connect the dots? It's funny to slowly watch all the big wigs finally start to realize....although WAY behind the curve and making VERY conservative concessions - 1% from GDP growth is conservative. Watch to see how it plays out with the consumer? CAN YOU NOT CONNECT THE DOTS?
The DOW is easy, money is flowing in back from Real Estate, further sign that boom is over. The current bull is being fed by that IMO. Just saying they 'expect' a soft landing isn't good enough, something is being rotated in and I think we know where it is coming from.
Now, as the economy underperforms over the next 6 quarters, stocks will sag a bit with weakened earnings.
You don't know whether to laugh, cry or rage at the machine. At least you may not know, my choice became apparent long ago.
It constantly astonishes me that the coming demographic challenge gets reported as some sort of new information. I can't even calculate how many times that I have shown that the projected gap in Social Security is small and shrinking due to over perssimistic economic assumptions only to have people point out that the real issue isn't economics but demography (generally accompanied by a rhetorical pat on the head).
Folks God is not making more Boomers. Every Boomer who would ever be born was already on the face of the earth and starting to pay taxes by 1984. Boomer numbers by and large got locked in in 1964 when the last one was born. Granted a little uncertainty remained due to improving mortality rates but those increases too were built into the model and adjusted as the numbers came in. In other words every demographic inflexion point is already built into the models. That economists like Bernanke think they can convince us by pointing at projected changes in covered worker ratios is frankly insulting. Those ratio changes are already built in and the model is still improving.
You can bemoan the fact that it takes two incomes to support one family, even when that family has on average fewer children than in the past. While this may be tough on working families it is very good for Social Security. Because the overall issue is not covered worker ratio to retiree but covered worker ratio to total dependents. A number that has been remarkeably steady and in fact peaked in the early sixties. What is so raw is that this number is presented in the very next column in the very same table Bernanke is using to fear monger covered worker ratios.
I am not sure what it is about Social Security that leads otherwise educated people to assume they can just cherry pick numbers out of a table and expect no one to check their work.
Generally you are extremely fair, but in this one instance you are not being fair to Bernanke:
(1) Nothing in his speech suggests that he thinks the PR tax is a general fund tax.
(2) SS is, indeed, "largely" PAYGO. Expenditures currently run about $500+B, while revenues currently run about $700+B. That is why last year's surplus approached $200B.
Indeed; in my opinion "pay-as-you-go" doesn't rule out a surplus. It just states that there's enough money to pay the current expenditures with the current revenues.
dogfacegeorge, I agree that technically Bernanke is correct - Social Security is "largely" pay-as-you-go. But a significant portion is also pay-in-advance. How come he doesn't mention that in his speech?
The two biggest fiscal challenges are Medicare and the General Fund deficit (unmentioned in Bernanke's speech).
Look at how misleading this is: Bernanke says "Medicare trustees intermediate projections have Medicare spending growing from about 3 percent of GDP today to about 9 percent in 2050."
Now Medicare is pretty much pay-as-you-go right now. So its going to go from no annual deficit to an annual deficit of 6% of GDP - HUGE.
Let's be negative and say the average is a deficit of 3% of GDP (it is less since the largest deficit are the furthest in the future).
But wait. The General Fund deficit is already close to 4.5% of GDP, and excluding the impact of Medicare, will stay at that level until taxes are increased or General Fund spending is cut. So the General Fund is a bigger problem than Medicare - but Bernanke ignores it.
Why is that? Why does he ignore the pay-in-advance portion of Social Security and the General Fund deficit? Those are questions for him to answer.
I like your blog, but I think you are being unfair to Bernake.
You say that a significant amount of Social Security is "pay-in-advance". Which portion is this?
When I pay my SS taxes, I see them going to a general pool of money, that is then spent. I don't see any portion going to a private account that is earmarked for my use and off-limits to others.
Maybe I'm missing something, please set me straight.
All, I've heard from a Bush economic insider that the common view among Bush economists is that the annual SS surplus is just a General Fund tax and was a backdoor method of introducing a flat tax. This insider went even further and says the Bush economists understand they can't say this in Public - they have to continue to deceive the American people.
So I'm biased by this information I received. When I read speeches by Bernanke and Paulson, or read posts by former Bush economists like Mankiw, I look for clues that the information I received was correct.
It's funny how Bernanke and Mankiw NEVER mention the General Fund deficit and constantly lump Social Security with Medicare.
I think the insider was correct. So maybe I jump on Bernanke too quickly ... but I think I'm right.
Bernanke or Mankiw could prove me wrong tomorrow by talking about the challenge of the General Fund deficit and how it dwarfs the challenge from Social Security.
I doubt that will happen. I will gladly praise them if they do.
"Why does he ignore the pay-in-advance portion of Social Security and the General Fund deficit?"
Why? Because they are not relevant to his argument.
Bernanke says:
1. Entitlements (MC & SS) are on an unsustainable path.
2. Of the two, MC is a much bigger problem than SS.
3. We should figure out (a) how much of these benefits we can afford and (b) who is going to pay.
Who can disagree?
I think, at heart, you criticize Bernanke for being afraid to tell us that the GF deficit is a scarier problem than MC is. And you may be right - he may feel that he should not voice this truth in the current political climate. But you may be wrong. Perhaps he did not include this fact in his presentation for the simple reason that it would divert attention from the argument he was trying to make.
What dots are the dow connecting? The same dots that the indexes usually connect in months prior to a recession. Nouriel Roubini comments on the sucker's rally here on his blog RGE - Nouriel Roubini's Global EconoMonitor
I beg to differ. NO portion of SS is "pay in advance." The surplus is "invested" in government bonds, which are simply used to fund the general budget.
Show me the account with my name on it and I will say there is a pay in advance component. But since there isn't one...
In order for the "Trust fund" (of which there is no fund and I do not trust it) to pay my benefits, the general fund will require a sufficient surplus to cover the future repayments of government bonds. That would mean switching from borrowing the $200 million per year to paying it.
If you really think that will happen you are quite naive.
Bernanke's error was in saying "largely." It is wholly PAYGO, and then some.
Trent, I understand perfectly what is happening. I just pretend that the law is the law and the Federal Government is being honest with the people. Silly me.
Bernanke always looked like a political hack to me from the point where he blamed the CA deficit on a savings glut in Asia. And yet his writing on the Great Depression is wonderfully clear. He looks like a guy who has never had a job that involved managing risk. And that's, in fact, is exactly the case. Not to be confused with Volker.
Anyway, when the coming storm turns out perfectly, he will be remembered as Ben the Brief.
"I beg to differ. NO portion of SS is "pay in advance." The surplus is "invested" in government bonds, which are simply used to fund the general budget"
If you say that, you must admit that
(1)part of the payroll tax is just an income tax
(2)lower income people pay income tax at higher rates than higher income people.
Let the Rethugs run for election on that platform.
"That would mean switching from borrowing the $200 million per year to paying it.
If you really think that will happen you are quite naive."
It will really happen. That would be the pity of it - about what debasement needs to happen for it.
You see to be one of those deluded individuals who think that since there wont be money in future, SS wont be paid. Economics always take second place to democratic politics.
The sane position is for the government to place itself now on a path to pay back that money in future.
Looters like you want the government to leech off that money now (so that you can benefit from all the governmnet spending) and not pay it back later - hiding under pretenses of "Show me the account with my name on it" for not paying it back. You, Cato and the crooks all want to collect the money now, and not give it back later. And want all the money spent so far to be never paid back.
Guess what, if you want government to do politics now, and follow economic sense later on, it's not gonna happen.
Political will's going to exert itself even then, and there will be a lot of pissed off voters than rich people. For a smart looter, you seem to have too much hopes in the government coming to it's senses only when it's time to pay back the money, not when it borrows and spends it.
Prepare for high taxes buddy - no less than Milton Friedman says to spend is to tax. What you spend today, is going to come back as tax tomorrow.
And really, looter is the right word for people like you. You who do not want any accounting or repayment for the money so far borrowed and spent, or is going to be borrowed and spent - all the while materially benefitting from that spending. All you want is that when it comes to pay it back, just default, but please dont raise your taxes.
OK, so it seems that people agree no amount of SS is a "pay in advance", it's all "pay as you go".
Since it is a paygo system, tied to the federal government, this means there is no "lock box" or "SS Fund", it's just one more form of tax, and yes, a flat to regressive one at that.
I honestly cannot interpret what CR means when he says "All, I've heard from a Bush economic insider that the common view among Bush economists is that the annual SS surplus is just a General Fund tax and was a backdoor method of introducing a flat tax."
SS is just another general fund tax -- that's not an opinion, it's a fact, and it was a fact long before Bush I or Bush II became president. It's been a fact since SS was established since it was established as a paygo system. PAYGO means that there is no "trust" that can store any "surplus". This also means that when the "surplus" becomes a "deficit", it can be filled by the same place the "surplus" went -- the general fund.
Now, how a PAYGO retirement system established over 50 years ago became a secret back door so Bush II could introduce a flat tax I do not know.
If you really think that will happen you are quite naive.
I wonder if the PBoC is being naive? After all they have bought a whole lot of similar paper - US bonds.
Now maybe you think we'll pay the Chinese back but not the American people via SS benefits. I find that hard to believe. After all the PBoC doesn't have a lot of electoral votes, yes/no?
The only thing we know FOR SURE looking objectively at the market is that recently, in a few stocks comprised in the DOW 30, there have been more buyers than sellers. As a result that index has gone up.
Who those buyers are, where the money came from, and how long will it stay is anybody's guess.
honest bob, I've noticed that people get wrapped up in definitions, and basically no matter how you view the accounting, the following is true: With the fiscal challenges that Bernanke noted, the prudent thing would be to run a General Fund budget surplus right now - so the U.S. can borrow in the future when the demographics are not favorable. Instead the U.S. has done the reverse - borrowed during favorable demographics - obviously a poor plan.
Clearly the U.S. should be currently running a surplus, or at least breaking even. I would go further and argue it should be breaking even excluding SS - but I'm a true fiscal conservative.
I'm all for smaller government, but I think it is fiscally wrong and even immoral to deficit spend during a period of economic growth with the demographic challenges ahead of us that Bernanke noted.
honest bob: The whole economy is "paygo", of sorts. Money is constantly revolving, and after removing accounting gimmicks, it comes down to things of immediate utility (food, shelter, staples, ...), and the hard assets and the social process(es) to produce them.
Tanta, "Bernanke's not sure how the housing market slowdown is going to play out...."
STOP RIGHT THERE, EVERYBODY! My guess is: Everything else in yesterday's talk was deliberate MISDIRECTION. Some time ago, I have it saved somewhere, BB attributed our recent skyrocketing housing price increases to FUNDAMENTALS. This is an absurd allegation he's never been pressed to elaborate on. If he doesn't understand, or worse if he won't argue the obvious, that it will take 15 years at present price levels for earnings growth to catch up with present price levels, how can we expect him to carefully guide its deflation?
I don't have the slightest doubt that addressing the housing bubble is one of the two most critical economic threats we face (along with credit derivatives). The idea that BB doesn't yet grasp this is absolutely horrifying.
CR: A fair point about wanting to run the budget as a whole in surplus. But I ask you -- has this ever happened in the history of the US? Even under the Clinton boom, I don't remember the budget as a whole running a surplus.
I also appreciate your point about being a true fiscal conservative. But given that the rest of the world has been so willing to lend to the US at rock bottom rates, is it fiscally prudent to turn down that money? Would a man who turned down a loan at 0.000001% interest be fiscally prudent?
It is very easy for the US to dig itself out of whatever fiscal hole it is in -- it raises taxes or cuts benefits. Both are really two sides of the same coin -- an individual who is taxed more now to get the same SS in the future is not better or worse of than a man who is taxes the same now to get less SS in the future. I think higher taxes create more distortion -- shrinking the pie overall -- but for the individual, a benefit cut is a tax hike by another name, and both taxes rates and benefit rates have lots of adjustment in them.
CM: The whole economy is not "paygo". The money I put in my bank account for me to spend in the future is not "paygo", it is "pay in advance". There is a real difference between saving for yourself, and being taxed so that money can be spent by other people. Yes, money is moving around in both instances, but "paygo" has a fairly clear accounting definition, and there are very real differences between taxes and savings as well.
Bailey, you're obviously just as confused as I am. "Demographics" can give us clear-cut factual evidence about the composition of the workforce and its living standards/willingness to pay taxes 75 years from now, if you're talking about Social Security, but "demographics" cannot tell us anything except enigmatic murky non-sequiturs about the economic effects six months from now of a nation with more 4-bedroom 3.5-bathroom single family residences than households left to buy them if you're talking about the Housing Bubble. You can be in my "Not Smart Enough To Be Fed Chairman" Club if you want.
I don't understand how any American can believe that money invested in US securities on behalf of Americans is different from money invested on behalf of the people of China via their "people's" government. I also do not see why the American government means "full faith and credit" only when the investor is another country or an individual bond holder but not when it is the workers of their own country.
This alone should, in my mind, make Americans focus on the general fund debts. I wonder if it has ever occurred to anyone that the boomers can better afford taxes before they retire, not after.
Shorter Bernanke:
"Sun rises in the East".
Duh.
Did Ben dust off one of Alan Greenspan's recent speeches on Social Security? Maybe Ben should go back to 1983 to see what Alan and President Reagan were sensibly saying in regards their Soc. Sec. reform.
i've been favorably disposed about bernake until now, too, but if the price of working for the bush administration is to tell lies about social security and he's willing to pay it, then the hell with him.
Bernanke's not sure how the housing market slowdown is going to play out, but he's confident he understands Social Security? Did I read this correctly?
Why is the housing Market so hard for him to figure out? Why did he not predict housing slowdown would effect GDP number? I mean seriously, is it just me or does it not seem that hard to connect the dots? It's funny to slowly watch all the big wigs finally start to realize....although WAY behind the curve and making VERY conservative concessions - 1% from GDP growth is conservative. Watch to see how it plays out with the consumer? CAN YOU NOT CONNECT THE DOTS?
what dots are the DOW connecting right now??
The DOW is easy, money is flowing in back from Real Estate, further sign that boom is over. The current bull is being fed by that IMO. Just saying they 'expect' a soft landing isn't good enough, something is being rotated in and I think we know where it is coming from.
Now, as the economy underperforms over the next 6 quarters, stocks will sag a bit with weakened earnings.
You don't know whether to laugh, cry or rage at the machine. At least you may not know, my choice became apparent long ago.
It constantly astonishes me that the coming demographic challenge gets reported as some sort of new information. I can't even calculate how many times that I have shown that the projected gap in Social Security is small and shrinking due to over perssimistic economic assumptions only to have people point out that the real issue isn't economics but demography (generally accompanied by a rhetorical pat on the head).
Folks God is not making more Boomers. Every Boomer who would ever be born was already on the face of the earth and starting to pay taxes by 1984. Boomer numbers by and large got locked in in 1964 when the last one was born. Granted a little uncertainty remained due to improving mortality rates but those increases too were built into the model and adjusted as the numbers came in. In other words every demographic inflexion point is already built into the models. That economists like Bernanke think they can convince us by pointing at projected changes in covered worker ratios is frankly insulting. Those ratio changes are already built in and the model is still improving.
You can bemoan the fact that it takes two incomes to support one family, even when that family has on average fewer children than in the past. While this may be tough on working families it is very good for Social Security. Because the overall issue is not covered worker ratio to retiree but covered worker ratio to total dependents. A number that has been remarkeably steady and in fact peaked in the early sixties. What is so raw is that this number is presented in the very next column in the very same table Bernanke is using to fear monger covered worker ratios.
Social Security Online -- File Not Found
Table V.A2.-Social Security Area Population as of July 1 and Dependency Ratios,
Calendar Years 1950-2080
I am not sure what it is about Social Security that leads otherwise educated people to assume they can just cherry pick numbers out of a table and expect no one to check their work.
CR,
Generally you are extremely fair, but in this one instance you are not being fair to Bernanke:
(1) Nothing in his speech suggests that he thinks the PR tax is a general fund tax.
(2) SS is, indeed, "largely" PAYGO. Expenditures currently run about $500+B, while revenues currently run about $700+B. That is why last year's surplus approached $200B.
And (3), nothing in his speech suggests that he is unaware of the current SS surplus.
Indeed; in my opinion "pay-as-you-go" doesn't rule out a surplus. It just states that there's enough money to pay the current expenditures with the current revenues.
dogfacegeorge, I agree that technically Bernanke is correct - Social Security is "largely" pay-as-you-go. But a significant portion is also pay-in-advance. How come he doesn't mention that in his speech?
The two biggest fiscal challenges are Medicare and the General Fund deficit (unmentioned in Bernanke's speech).
Look at how misleading this is: Bernanke says "Medicare trustees intermediate projections have Medicare spending growing from about 3 percent of GDP today to about 9 percent in 2050."
Now Medicare is pretty much pay-as-you-go right now. So its going to go from no annual deficit to an annual deficit of 6% of GDP - HUGE.
Let's be negative and say the average is a deficit of 3% of GDP (it is less since the largest deficit are the furthest in the future).
But wait. The General Fund deficit is already close to 4.5% of GDP, and excluding the impact of Medicare, will stay at that level until taxes are increased or General Fund spending is cut. So the General Fund is a bigger problem than Medicare - but Bernanke ignores it.
Why is that? Why does he ignore the pay-in-advance portion of Social Security and the General Fund deficit? Those are questions for him to answer.
Best Wishes.
Calculated Risk:
I like your blog, but I think you are being unfair to Bernake.
You say that a significant amount of Social Security is "pay-in-advance". Which portion is this?
When I pay my SS taxes, I see them going to a general pool of money, that is then spent. I don't see any portion going to a private account that is earmarked for my use and off-limits to others.
Maybe I'm missing something, please set me straight.
All, I've heard from a Bush economic insider that the common view among Bush economists is that the annual SS surplus is just a General Fund tax and was a backdoor method of introducing a flat tax. This insider went even further and says the Bush economists understand they can't say this in Public - they have to continue to deceive the American people.
So I'm biased by this information I received. When I read speeches by Bernanke and Paulson, or read posts by former Bush economists like Mankiw, I look for clues that the information I received was correct.
It's funny how Bernanke and Mankiw NEVER mention the General Fund deficit and constantly lump Social Security with Medicare.
I think the insider was correct. So maybe I jump on Bernanke too quickly ... but I think I'm right.
Bernanke or Mankiw could prove me wrong tomorrow by talking about the challenge of the General Fund deficit and how it dwarfs the challenge from Social Security.
I doubt that will happen. I will gladly praise them if they do.
Best to all.
maybe MR Ben knows the crime families stole it all and refuse to give it all back and the financial statements are bogus at best...
"Why does he ignore the pay-in-advance portion of Social Security and the General Fund deficit?"
Why? Because they are not relevant to his argument.
Bernanke says:
1. Entitlements (MC & SS) are on an unsustainable path.
2. Of the two, MC is a much bigger problem than SS.
3. We should figure out (a) how much of these benefits we can afford and (b) who is going to pay.
Who can disagree?
I think, at heart, you criticize Bernanke for being afraid to tell us that the GF deficit is a scarier problem than MC is. And you may be right - he may feel that he should not voice this truth in the current political climate. But you may be wrong. Perhaps he did not include this fact in his presentation for the simple reason that it would divert attention from the argument he was trying to make.
What dots are the dow connecting? The same dots that the indexes usually connect in months prior to a recession. Nouriel Roubini comments on the sucker's rally here on his blog RGE - Nouriel Roubini's Global EconoMonitor
Oh and in fact he predicted the sucker's rally on Sept 5th.
I beg to differ. NO portion of SS is "pay in advance." The surplus is "invested" in government bonds, which are simply used to fund the general budget.
Show me the account with my name on it and I will say there is a pay in advance component. But since there isn't one...
In order for the "Trust fund" (of which there is no fund and I do not trust it) to pay my benefits, the general fund will require a sufficient surplus to cover the future repayments of government bonds. That would mean switching from borrowing the $200 million per year to paying it.
If you really think that will happen you are quite naive.
Bernanke's error was in saying "largely." It is wholly PAYGO, and then some.
Trent, I understand perfectly what is happening. I just pretend that the law is the law and the Federal Government is being honest with the people. Silly me.
Now back to housing.
Best to all.
Bernanke always looked like a political hack to me from the point where he blamed the CA deficit on a savings glut in Asia. And yet his writing on the Great Depression is wonderfully clear. He looks like a guy who has never had a job that involved managing risk. And that's, in fact, is exactly the case. Not to be confused with Volker.
Anyway, when the coming storm turns out perfectly, he will be remembered as Ben the Brief.
Trent ...
"I beg to differ. NO portion of SS is "pay in advance." The surplus is "invested" in government bonds, which are simply used to fund the general budget"
If you say that, you must admit that
(1)part of the payroll tax is just an income tax
(2)lower income people pay income tax at higher rates than higher income people.
Let the Rethugs run for election on that platform.
"That would mean switching from borrowing the $200 million per year to paying it.
If you really think that will happen you are quite naive."
It will really happen. That would be the pity of it - about what debasement needs to happen for it.
You see to be one of those deluded individuals who think that since there wont be money in future, SS wont be paid. Economics always take second place to democratic politics.
The sane position is for the government to place itself now on a path to pay back that money in future.
Looters like you want the government to leech off that money now (so that you can benefit from all the governmnet spending) and not pay it back later - hiding under pretenses of "Show me the account with my name on it" for not paying it back. You, Cato and the crooks all want to collect the money now, and not give it back later. And want all the money spent so far to be never paid back.
Guess what, if you want government to do politics now, and follow economic sense later on, it's not gonna happen.
Political will's going to exert itself even then, and there will be a lot of pissed off voters than rich people. For a smart looter, you seem to have too much hopes in the government coming to it's senses only when it's time to pay back the money, not when it borrows and spends it.
Prepare for high taxes buddy - no less than Milton Friedman says to spend is to tax. What you spend today, is going to come back as tax tomorrow.
And really, looter is the right word for people like you. You who do not want any accounting or repayment for the money so far borrowed and spent, or is going to be borrowed and spent - all the while materially benefitting from that spending. All you want is that when it comes to pay it back, just default, but please dont raise your taxes.
OK, so it seems that people agree no amount of SS is a "pay in advance", it's all "pay as you go".
Since it is a paygo system, tied to the federal government, this means there is no "lock box" or "SS Fund", it's just one more form of tax, and yes, a flat to regressive one at that.
I honestly cannot interpret what CR means when he says "All, I've heard from a Bush economic insider that the common view among Bush economists is that the annual SS surplus is just a General Fund tax and was a backdoor method of introducing a flat tax."
SS is just another general fund tax -- that's not an opinion, it's a fact, and it was a fact long before Bush I or Bush II became president. It's been a fact since SS was established since it was established as a paygo system. PAYGO means that there is no "trust" that can store any "surplus". This also means that when the "surplus" becomes a "deficit", it can be filled by the same place the "surplus" went -- the general fund.
Now, how a PAYGO retirement system established over 50 years ago became a secret back door so Bush II could introduce a flat tax I do not know.
If you really think that will happen you are quite naive.
I wonder if the PBoC is being naive? After all they have bought a whole lot of similar paper - US bonds.
Now maybe you think we'll pay the Chinese back but not the American people via SS benefits. I find that hard to believe. After all the PBoC doesn't have a lot of electoral votes, yes/no?
what dots are the DOW connecting right now??
Nothing.
The only thing we know FOR SURE looking objectively at the market is that recently, in a few stocks comprised in the DOW 30, there have been more buyers than sellers. As a result that index has gone up.
Who those buyers are, where the money came from, and how long will it stay is anybody's guess.
honest bob, I've noticed that people get wrapped up in definitions, and basically no matter how you view the accounting, the following is true: With the fiscal challenges that Bernanke noted, the prudent thing would be to run a General Fund budget surplus right now - so the U.S. can borrow in the future when the demographics are not favorable. Instead the U.S. has done the reverse - borrowed during favorable demographics - obviously a poor plan.
Clearly the U.S. should be currently running a surplus, or at least breaking even. I would go further and argue it should be breaking even excluding SS - but I'm a true fiscal conservative.
I'm all for smaller government, but I think it is fiscally wrong and even immoral to deficit spend during a period of economic growth with the demographic challenges ahead of us that Bernanke noted.
Best Wishes.
honest bob: The whole economy is "paygo", of sorts. Money is constantly revolving, and after removing accounting gimmicks, it comes down to things of immediate utility (food, shelter, staples, ...), and the hard assets and the social process(es) to produce them.
Tanta, "Bernanke's not sure how the housing market slowdown is going to play out...."
STOP RIGHT THERE, EVERYBODY! My guess is: Everything else in yesterday's talk was deliberate MISDIRECTION. Some time ago, I have it saved somewhere, BB attributed our recent skyrocketing housing price increases to FUNDAMENTALS. This is an absurd allegation he's never been pressed to elaborate on. If he doesn't understand, or worse if he won't argue the obvious, that it will take 15 years at present price levels for earnings growth to catch up with present price levels, how can we expect him to carefully guide its deflation?
I don't have the slightest doubt that addressing the housing bubble is one of the two most critical economic threats we face (along with credit derivatives). The idea that BB doesn't yet grasp this is absolutely horrifying.
CR: A fair point about wanting to run the budget as a whole in surplus. But I ask you -- has this ever happened in the history of the US? Even under the Clinton boom, I don't remember the budget as a whole running a surplus.
I also appreciate your point about being a true fiscal conservative. But given that the rest of the world has been so willing to lend to the US at rock bottom rates, is it fiscally prudent to turn down that money? Would a man who turned down a loan at 0.000001% interest be fiscally prudent?
It is very easy for the US to dig itself out of whatever fiscal hole it is in -- it raises taxes or cuts benefits. Both are really two sides of the same coin -- an individual who is taxed more now to get the same SS in the future is not better or worse of than a man who is taxes the same now to get less SS in the future. I think higher taxes create more distortion -- shrinking the pie overall -- but for the individual, a benefit cut is a tax hike by another name, and both taxes rates and benefit rates have lots of adjustment in them.
CM: The whole economy is not "paygo". The money I put in my bank account for me to spend in the future is not "paygo", it is "pay in advance". There is a real difference between saving for yourself, and being taxed so that money can be spent by other people. Yes, money is moving around in both instances, but "paygo" has a fairly clear accounting definition, and there are very real differences between taxes and savings as well.
Bailey, you're obviously just as confused as I am. "Demographics" can give us clear-cut factual evidence about the composition of the workforce and its living standards/willingness to pay taxes 75 years from now, if you're talking about Social Security, but "demographics" cannot tell us anything except enigmatic murky non-sequiturs about the economic effects six months from now of a nation with more 4-bedroom 3.5-bathroom single family residences than households left to buy them if you're talking about the Housing Bubble. You can be in my "Not Smart Enough To Be Fed Chairman" Club if you want.
I don't understand how any American can believe that money invested in US securities on behalf of Americans is different from money invested on behalf of the people of China via their "people's" government. I also do not see why the American government means "full faith and credit" only when the investor is another country or an individual bond holder but not when it is the workers of their own country.
This alone should, in my mind, make Americans focus on the general fund debts. I wonder if it has ever occurred to anyone that the boomers can better afford taxes before they retire, not after.