Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: smolejv@gmx.net who wrote (34750)	6/9/2003 3:55:46 AM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Hi DJ, I thought CB had promised that debt will not be a problem ... and by connecting the posting dots, Professor Bernanke is going to save the world by running the printing press on triple shift ... until ACF Mike's promised demographic Armageddon in 7 years’ time. And yet, … seattletimes.nwsource.com My country 'tis of debt, to tune of $43 trillion On Friday, May 16, the word was out. A $350 billion tax cut was a done deal. So why did the stock market sink that day? Why did it plunge the following Monday, losing 2.5 percent of its value? One possible explanation is Treasury Secretary John Snow and his comments on the dollar. Another is concern about new terrorist attacks. But let me suggest a third. Despite efforts to suppress it, word is getting around that we can't afford a tax cut. The story starts one night in January, only days after Snow had replaced Paul O'Neill at the Treasury Department. Two men were leaving a restaurant in Santa Fe, N.M. A cellphone rang. The caller told Boston University economist Laurence Kotlikoff that six months of work by two economists was going to be deleted from the president's budget. The budget was due to be published in February. I know this happened because I was the second man: Kotlikoff was in Santa Fe working on a book project with me. The material to be deleted from the budget document was an updating of generational accounting. Former Treasury Secretary O'Neill had requested an estimate of the true, long-term obligations of the U.S. government. The estimate would include the formal debt of the U.S. Treasury plus equally serious government promises to provide retirement income and medical care. (Readers who think promises of Social Security and Medicare aren't as serious as U.S. Treasury bond promises should visit the nearest elderly person.) The resulting information might easily have been lost in a document whose online girth is measured in megabytes. Except for one thing. The new accounting shows the United States is broke. It shows the true obligations of government were 10 times larger than Treasury debt held by the public. It shows the present value of these unfunded obligations is a mind-numbing $43 trillion. In a recent telephone conversation I asked one of the project economists, Jagadeesh Gokhale, why he thought his work was cut. Gokhale, a senior economist for the Federal Reserve Bank of Cleveland, was circumspect. He suggested the figures were a surprise to the new Treasury secretary. Here's another interpretation: Snow's first task was to sell the president's tax cut. The sales job would be awkward if an official government document announced we were already $43 trillion in the hole. (The Federal Reserve, by the way, recently put the net worth of all households at $39 trillion. This problem goes way beyond taxing the rich, the poor or the middle class.) So the generational accounting figures disappeared from the budget. But they did not cease to exist. In early March, the other economist on the project, Kent Smetters, testified before the House Subcommittee on the Constitution of the United States. Smetters, an expert in Social Security and Medicare, is a professor at the Wharton School in Philadelphia. Asked to comment on the Balanced Budget Amendment, House Joint Resolution 22, Smetters was direct: "I support practically any effort to make it harder for one generation to pass large fiscal burdens to future generations. ... " Unfortunately, he noted, government cash accounting is a poor basis for a Balanced Budget Amendment. "The government reports that the national debt in 2003 was about $3.8 trillion in the form of government 'debt held by the public.' But that number ignores massive imbalances in Medicare and Social Security programs and the government's other programs. "When the liabilities associated with those programs are taken into account, the nation's fiscal policy is currently off-balance by over $43.4 trillion in present value, a number that is not reported in standard budget documents," he told the committee. The American Enterprise Institute will soon publish a pamphlet, written by Gokhale and Smetters. The draft copy does more than lay out the size of the unfunded liabilities of government. It shows how much the current generation is benefiting at the expense of the next. It shows, for instance, that past and current generations of Social Security recipients will receive $8.7 trillion more in benefits than they will pay in employment taxes. Our children and grandchildren will pay $1.7 trillion more in employment taxes than they will receive in benefits. I asked Gokhale if the figures in the document, Smetters' testimony, and what was supposed to appear in the president's budget were identical. He said there had been some changes in assumptions. But they were very similar. Republicans and Democrats have distracted us with battles between haves and have-nots for decades. Meanwhile, they have bankrupted the country. Perhaps that terror, not al-Qaida or currency traders, may explain the odd market decline after a tax cut that was supposed to make stocks soar. Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.