Posted by Michael A. Kamperman on June 30, 2010
The New York Times had an editorial calling for an extension of unemployment benefits. However, I took serious disagreement with their endorsement of deficit reduction by saying “A sane approach would couple near-term federal spending with a credible plan for deficit reduction — a mix of tax increases and spending cuts — as the economic recovery takes hold.” In reality this is just a euphemism for cutting Social Security and Medicare benefits. This is not a sane approach. It is akin to the concept that the real fiscal threat is our debt and our long-term structural deficit, which is simply not true. The U.S. Government owes everyone dollars, which it can print. Now would be a very good time to start printing some money. In reality there are going to be fewer jobs per-capita in our economy for a long time. The sane approach would be to lower the age of eligibility for full Social Security and Medicare to age 60 and to give everyone on Social Security a 20% raise. This is counter-intuitive to current mainstream thinking. But in the 1930′s Keynes concepts of government spending seemed counter-intuitive to maintaining a healthy economy.
It would cost $400 billion a year to lower the retirement age to 60. But the question should be what would we get for that $400 billion? For starters would we get a cadre of young retirees ready to volunteer at the charity of their choice. Plus, most of these retirees would maintain their spending patterns as they tap additional sources of retirement savings. Companies would be able to lower their health care spending as those over 60 who choose to keep working would move to Medicare. Older workers are the most expensive workers in health insurance risk pools. This would free up compensation money for raises for other employees. Some would be moving from Medicaid to Medicare, which would lower the cost of the Medicaid program. But the biggest benefit would be millions of jobs would open up for unemployed workers and young people entering the workforce. This would save billions and billions of dollars at the state and federal level as unemployment spending and supplemental nutritional (food stamps) spending would decrease. And, the income of the unemployed would rise boosting consumer spending and tax revenues. Additionally, confidence in a more secure and earlier retirement would encourage people in their 50′s to spend more money rather than fear that they will have to wait longer to receive Social Security and Medicare benefits. And the ensuing decline in the unemployment rate would entail a huge boost in consumer confidence.
Raising the retirement age, which is the goal of President Obama’s Deficit Commission, will trap us into years and years of high structural unemployment rates. America needs to find a way out of this New Great Depression and raising taxes and cutting federal government spending was tried in 1937 and ended in abject failure. So why even give lip service to an obviously failed policy. We remain trapped in a mindset that since we have to balance our budgets the federal government should also have to balance its budget. But no other entity is like the U.S. Government, because they can print money and we cannot. Those that acknowledge the debt and the deficit are a serious problem give the upper-hand to the Deficit Hawks. In no way do I see either as problematic. We can print China a one trillion dollar check anytime they want their money back.
Posted by Michael A. Kamperman on June 22, 2010
Here we go again. China once again throws us a bone to pacify the barking dogs calling for reform. First China “pretended” to run a trade deficit right before the Treasury had to declare whether or not China was a currency manipulator. Predictably, Geithner took a pass. The next month China once again ran a huge trade surplus. Now China has decided to adjust its currency, the yuan, to a basket of currencies including the euro and the yen as well as the dollar. This decoupling of the dollar is nothing more than a smoke and mirrors trick. China still plans to go “slow.” In fact, Nouriel Roubini pointed out this new structure would allow China to actually weaken its currency against the dollar in the event the euro and yen were to fall significantly against the dollar. What is actually happening is having the yuan tied to the dollar has stuck China with the unintended consequence of seeing its currency rise in value against the euro, whose countries represent its largest trading partner. Despite all the talk about China being concerned about our fiscal position China never took the step to diversify away from the dollar when the dollar was weakening against other currencies. Now that it is strengthening they suddenly want diversity. And predictably, this move occurs right before the G-20 meeting next week where pressure was about to be ramped up on China to reform. Now they can wink and say they already did.
China’s policies are destabilizing the global economy to the benefit of China. Currently China purchases only one dollar worth of goods from us for every four dollars it sells us. Even Japan is only at a two to one ratio vs China’s four to one ratio. Additionally, China has horrific working conditions for little pay. The time has come for the U.S. to tell China the free ride to development is over. Not only must China begin to import more goods, but it must also begin to improve working conditions and raise workers pay. If this costs it some exports, then so be it. There is a direct link to the debt crisis in the West and China’s flooding Western market with cheap goods based on a manipulated currency on the back of all but slave labor. Workers in the West that are forced to compete are being forced to take big pay cuts. Less income reduces their ability to pay their debts.
The upcoming G-20 summit represents an opportunity for President Obama to stand up and be counted. He should not tell others simply what they want to hear. He should not concern himself with America’s likability by the rest of the world. he should tell China the jigs up and gradualism they crave is unacceptable. He should tell Europe, particularly Germany and the U.K., that austerity will solve nothing and will ultimately trap the Western World in a prolonged debt induced depression. He should stand up for Radical Keynesianism. It’s actually comical that the Great Depression of the 1930′s demonstrated Keynes was right and the Austrian Economists were wrong. So who is the world turning to during the next debt-induced Great Depression but the Austrian Economists. Finally, he should then turn the microphone to the U.S. Congress and admit the stimulus bill he championed was too small, not too big. He should lay before them another stimulus bill for 2011-2012 of more than one trillion dollars. This time he should he include massive infrastructure spending, which will improve America’s productivity. He could show real leadership. While not holding my breath, I remain hopeful.
Posted by Michael A. Kamperman on June 12, 2010
The federal government of the United States does not owe $13 Trillion. It owes $8.5 Trillion. The other $4.5 Trillion is owed primarily to the Social Security and Medicare Trust Funds, along with some smaller Trust Funds. The Trust Funds are compromised of U.S. Treasury Bonds. Basically, the U.S. Government has printed an I.O.U. to itself. The higher than necessary payroll taxes collected all of these years to fund Social Security and Medicare have been spent. In truth, both of these programs are line items of the federal budget and the taxes collected specifically for these programs have been thrown into the general operating revenues of the federal government since they started collecting them. We are suffering from the unintended consequences of rhetorically establishing the Social Security and Medicare Trust Funds. It is time to officially end them. Those Trust Funds are nothing more than a smoke and mirrors sham and they were established for the express purpose of providing political cover for politicians who voted to establish the programs. Now that rhetoric is leading to new rhetoric that the U.S. government owes $13 Trillion and the debt burden is the biggest threat the country faces. This in and of itself is odd considering the U.S. Government owes everyone dollars, which it has the legal power to print.
It is also leading to rhetoric, depending on who does the counting, that the federal government also has unfunded Trust Fund liabilities of anywhere from $45 Trillion to $99 Trillion. This is based on calculations of assumed growth in Social Security and primarily Medicare spending for the next 75 years over and above the payroll taxes designated to fund the programs. These calculations are not worth the paper they are printed on. Either health care expenditures will slow down or we will raise the taxes to fund them. The world will not stay static for the next 75 years. The real danger is the concept the U.S. Government should have assets set aside to pay all future expenditures. We have exactly zero dollars set aside and no Trust Fund established for defense. The defense budget is more than $200 billion greater than the current Medicare budget. I don’t here anyone saying we have an unfunded defense liability and the U.S. will be unable to defend itself in the future. The reason is we have never had a defense Trust Fund. We simply expect to pay as we go and borrow if necessary. The same should hold true for Social Security and Medicare.
This anti-debt/anti deficit rhetoric has risen to a fever pitch. Hence, our already all but lame duck President is unable to get large majorities of Democrats in either chamber of Congress to pass an extension of health subsidies for the unemployed until the end of this election year. I never have believed this would be true, but it is. Without increased deficit spending the economy will stay mired in a deflationary depression. The logic that a nurse working for the VA, a public sector job, is not as valuable to the economy as a nurse working for a private non-profit hospital treating Medicare patients is simply another myth. Public sector jobs help the economy just as much as private sector jobs. The key is to have a way to make sure public sector programs are run efficiently and effectively. The spreading belief in these myths are killing any chance we have of escaping the depression we are in. The only solution is to end the Trust Funds and end the illusion that Social Security and Medicare have a future funding source other than federal taxes, borrowings, and if necessary money printing. Sadly, we have met the enemy and he is us. No wonder Rome fell from within.
Posted by Michael A. Kamperman on June 5, 2010
The supposed V-Shaped recovery the U.S. economy had entered has been shown by the recent unemployment report to be non-existent. Just because business is better than it was 12 months ago coming out of the depths of the financial crisis doesn’t mean the economy is on strong footing. We only created 20,000 non-census jobs and once again people are being pushed out of the labor force to keep our unemployment rate at a phony 9.7%. This is the best we can do after we threw a TARP Too-Big-To-Fail life-line to the Zombie Banks, spent 75% of the stimulus money, and juiced the housing market a second time with an $8,000 first time home buyers tax credit combined with an open spigot of FHA mortgage credit. Now the tax credit is over and the states are assembling 2011 budget plans without the stimulus funds used to smooth over the depression of the last couple of years. And the unexpected BP blowout is rapidly shredding the economies of the people of the Gulf. The recent unemployment report does not include any of the aftershocks of these events. The next one will. The seeds of the poorly named double dip recession (what recovery?) that have been sown the last few weeks have sprouted. Europe is in disarray. Geithner’s message to stress test their banks and continue stimulus spending has fallen on deaf ears. The Summer/Volcker/Geithner strategy to have America consume less, save more, produce more, and export more has found no takers. We need a new plan. Yet I fear none is coming.
What I also fear is the Obama Presidency is imploding right before our eyes. Regardless of one’s political persuasion this is very bad news. At the very moment our country desperately needs visionary leadership we are on the verge of going rudderless. The failed BP blowout preventer has apparently blown apart the Obama Presidency. Night after night of images of oil soaked marshes with no sign of the cavalry charging to the rescue have exposed the President to be out of touch with the people and unable to get on top of the situation. For some odd reason the President continues to allow BP to stay in charge of the cleanup efforts of our Gulf rather than turning the effort over to our all-hands-on-deck military. The people get it that BP has to find a way to seal their well one mile under the ocean. The people don’t get why BP is dictating the pace and the effort of the clean-up of our Gulf. Neither do I. The ramifications of this are best explained by liberal talk show host Chris Mathews who stated “if the oil keeps flowing into the Fall the Democrats could lose 100 seats in the House.”
The economy desperately needs a much bigger dose of stimulus than it has received so far. It’s not going to get one. The President is already weakened to the point that he was unable to get the Senate to extend unemployment benefits to the end of this election year. Normally a no brainer for a Democratically controlled Senate. They will try again this week. The deficit hawks have gained control of the debate. After this election cycle many more of them will swarm the Halls of Congress. It was especially disheartening to hear President Obama praise the unemployment report yesterday as good news and continuing signs of progress. He is clinging to hope and a prayer that his economic programs will work eventually. Importantly, he has failed to articulate the case for more stimulus spending. Now it is too late. We’re “Slip slidin’ away-slip slidin’ away-you know the nearer our destination-the more we’re slip slidin’ away.” It’s now all up to Ben Bernanke and the Fed to lead us to the economic promised land. The number of people pleading for quantitative easing from the ECB has grown exponentially in the last few weeks. Soon the chorus of those calling on the Fed to print money will grow exponentially as well. There is no other way out.
