Misery Economic Theater 2011

[ewmayer]

ZehoHedge contributor (and government-trust-fund specialist) Bruce Krasting calls out recently-stepped-down Obama economic-team member Christina Romer for lying about the national debt by engaging in the oh-so-common ploy of ignoring the Social Security and Medicare trust fund borrowings as if they were not there (boldface highlighting is his, not mine):

Romer Lies

Christina Romer is one on the leading liberal economist in the nation. She’s no dummy. Valedictorian from Princeton, PHD from MIT, former Chairperson of the Council of Obama’s council of Economic Advisors and now she is a professor of economics at U.C. Berkley. She’s also a liar.

Ms Romer penned a piece for the NYT over the weekend. This was her plea for, guess what, more fiscal and monetary stimulus.

Romer acknowledges that US public sector debt is already too high. But she argues that we are nowhere near the levels that were reached post WWII. Her words:

At the end of World War II, that ratio hit 109 percent — one and a half times as high as it is now.

One and a half times Ms Romer? (This equates to a debt to GDP of 72%) Where does that number come from? A few facts:

First, total debt is now $14.588 Trillion. From Treasury Direct:

GDP as measured by the BLS was running a tad over $15b as of the most recent read. From BLS:

Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.7 percent, or $136.0 billion, in the second quarter to a level of $15,003.8 billion.

[EWM: Note that that computation includes new government borrowings as part of GDP - More hilarious government-style "accounting"]

Put the two together and the actual debt to GDP is currently at 97.25% (and rapidly rising). We will exceed the 100% barrier over the next six months.

What Ms Romer has done to spin her number is to exclude all of the debt ($4.7 Trillion) of the nation that is held by the Intergovernmental Accounts ("IG"). This is fast and loose economics. Ms. Romer knows that. But she elects to mislead the public with a totally false claim.

Does Romer think the debts owed to Social Security, Medicare, Military Pensions and Federal employees pension funds don’t count? If she takes that position, she is flat wrong. I maintain that the Intergovernmental debts are much more toxic to the economy than the debt held by the public.

The simple reason is that the Intergovernmental accounts have to be paid back in full. The process of running down the intergovernmental accounts has already started. It will accelerate very rapidly for the next decade. Every penny of the draw down of these accounts MUST result in an increase in debt held by the public.

The US has a huge outstanding of debt to the public. But neither the interest on that debt or the principal has to be paid back. This debt can be rolled over to a new maturity and a new investor. That happens virtually every single day. That is not the case with the Intergovernmental account. All of those Special Issue Treasury notes held by the various government agencies are going to come due over the next 20 years. When that happens it will result in a dollar for dollar increase in Debt to Public. Exactly the worst possible outcome.

One of the reader replies (UserId refers to a great heavy-metal band) is quotably trenchant:

by gwar5
on Sun, 08/14/2011 - 12:35
#1559011

Romer's vaunted Keynesian Multiplier Effect of stimulus spending did not work because it was overwhelmed by massive sovereign debt. Romer was apparently not smart enough to figure this out by simply observing the trends over the years that this terminal event was coming, and predictably, on her watch.

The positive effect of stimulus has consistently ratcheted down over the decades, like habituation to heroin, as the national debt has grown. As hardcore Keynesian addicts, Romer and Krugman are merely advocating massive amounts of stimulus to get the same response they are accustomed to in order to try to selfishly validate their theories one more time. It's just sad neither has the intellectual honesty to admit it's a dead end.

Romer (and Krugman) are now reduced to desperately doddering around the country defending their wasted life's work and the Cult of Cul-de-sac Keynesianism. It's an economic theory that was born out of fear of communism and fascism back in the 1930's to legitimize government deficit spending to keep the masses placated and fleece the public through inflation.

Delegitimization of Keynesianism has also delegitimized fiat currencies. Time to move back to the future and honest money with a gold or metals standard.

Given the laughable patheticity (oh, it's a word - I just write it, didn't I?) of Ms. Romer's claims, the bit about "lampooning of celebrities and figures in current events" from the Wikipage on Gwar seems especially apt:

Stage performance

The band's characteristic costumes are generally made of foam latex, styrofoam, and hardened rubber. The costumes cover very little, with the rest of their bodies accentuated with makeup. They further their production in concert by spraying their audiences with fluids. Most of the fluids are made of water and powdered food coloring which, for the most part, flakes off or washes out easily. The thicker fluids are made from a clear seaweed extract called carrageenan which is also used in ice cream and milkshakes.[4] Gwar does not use syrups or stage blood because they dry solid and can damage the band's costumes.[5] In concert, Gwar has been known occasionally to perform their encore without costumes or anything else.

Another trademark of Gwar's live show is their lampooning of celebrities and figures in current events. Targets of Gwar's humor have included O. J. Simpson, John Kerry, Mike Tyson, as well as every American President since Ronald Reagan, Jerry Garcia, Joan Crawford, Osama Bin Laden, Michael Jackson, Steve Wilkos, Al Gore, John McCain, Hillary Clinton, Paris Hilton, Arnold Schwarzenegger, Adolf Hitler, Lady Gaga, Bernard Madoff, Oprah Winfrey, Jerry Springer, Mr. Lordi, Sarah Palin and many others. The band also makes frequent references to political and historical figures, fantasy literature, and mythology. For instance, the song "Whargoul" makes reference to Minas Morgul as well as the eternal warrior of Michael Moorcock. Gwar also has many references to H. P. Lovecraft themes (Antarctica, Yig, Giant Penguins, Fleshy Insanities, etc.). In addition, the title of their fifth album Ragnarok comes from Norse mythology. They were nominated for two Grammys, one for Best Metal Performance "S.F.W." and one for Best Long Form Music Video "Phallus in Wonderland". The band also performed fire dancing until the character "Slymenstra Hymen" left the band.

[Christenson]

Originally Posted by ewmayer

<snip>

And on a lighter note...

Dilbert on what it takes to run a successful hedge fund

Believe it or not, I have recently read an ad from a hedge fund looking for programmers on craigslist.

0.2 Trillion out of 15 trillion does not a balanced budget begin to make...though it may help a bit.

Personally, I believe that insurance poisons the markets it dominates in....I have seen this with both car body repairs and the health field, because it removes significant responsibility for controlling costs from the consumer. When I wrecked a car, landing it on its side, I ended up with a gold-standard, like-new job where a bronze-standard job would have done fine for me.

I don't have any good solutions for health insurance...I see significant benefits to myself of having reasonable health care universally available, but can't see how to get there. I don't see how to discourage abuse of the system by the consumers, except through financial charges which some cannot afford, and I don't see how to put all the insurance clam-handling clerks out of business, and how to control the "my machine is better than your machine" phenomenon. I also don't see how to encourage an epidemic of science-based medicine, when becoming a doctor rquires suffering significant amounts of abuse. Proposals on how to control the cost of this highly valuable commodity?

[Zeta-Flux]

Dear cheesehead,

Would you believe that I didn't post what I did out of laziness? Or childhood indoctrination? Or stupidity? Or an attempt to accuse you? Or anything like that?

Would you believe that I posted what I did out of concern? Would you believe that I've seen the type of resentment you have quickly fester into an obsessive one-sided mindset that blinds the person to alternate viewpoints? This obsession then leads the person to focus on what they perceive to be the faults of those who "failed" them, not realizing in their crusade that there is more to the story. I've seen it with all sorts of people leaving all sorts of institutions/parties/relationships.

Anyway, to keep this post somewhat on topic, I'll try to answer your question "What is your definition of "spending ... under control"?" Frankly, it is a very loose sort of notion, and the answer I would give might differ from someone else's answer (even if they understood the concept the same way I did). My feeling is that taxes should cover what we, the citizens, collectively want the government to fund. We shouldn't leave the debt for others to pay. We should pay it ourselves.

The trouble is, in our system, it often only takes a majority of politicians to decide to increase government functions. Obamacare is a prime example. Furthermore, politicians somehow think that if there is a *projected* surplus then that authorizes them to spend less frugally now (cue the Bush tax cuts). So, somehow, we never seem to be in the black.

So, on principle, I'm not opposed to raising taxes. However, I'd like to see any tax hikes correspond to actual programs needing to be funded (so the other "consumers" [i.e. citizens] can stop thinking of these programs as free) and that they be accompanied by serious budget reform. And I'm not talking about 1 trillion is cuts to projected spending, leaving us spending even more money than last year.

I think Obamacare would have had a different vote if our tax rates were all raised by a flat percentage to cover the additional costs. If it had still passed, so be it.

I'd also like to see a tax rate which is a little more flat, so that everyone pays at least a little--so they realize the programs they benefit from are not free rides.

I am definitely for closing up tax loopholes, etc...

[schickel]

What we really need is an interactive tool that shows what making cuts to different programs would do for the whole budget mess....the Sacramento Bee had links to one for California when The Governator was in office and he was duking it out with the legislators over the budget.

Here's an interesting graphic from Barry Ritholtz's blog (~40% is a huge cut!):

[cheesehead]

Originally Posted by Zeta-Flux

Would you believe that I posted what I did out of concern?

I would if you'd simply say straight out what you mean instead of playing rhetorical tricks. But for a while lately, whenever I've asked straight questions, you've often evaded giving straight answers. This has puzzled me because it wasn't typical of you in the past when we discussed other matters. I now see glimmers of a possibility that you might be leaving the evasive phase. If your future responses avoid rhetorical evasion, I'll welcome the change.

How about giving us a straightforward answer to this: What was it that you were claiming in post #392 that I didn't "get"? Because you didn't say what that was in #392, it seemed that your "What I don't get is how one-sided your posts are" implied that you might have been claiming that what I didn't "get" was being less "one-sided". I based my response on that -- if my guess was wrong, it's up to you to tell us just what you meant.

Again, the question is:

What was it that you were claiming in post #392 that I didn't "get"?

Would you believe that I've seen the type of resentment you have quickly fester into an obsessive one-sided mindset that blinds the person to alternate viewpoints?

You wouldn't be trying to evade making straight responses to my posts by trying to frame my posts as "obsessive", would you?

Whether you abandon that framing attempt will be a telling measure of your intent to eschew evasion.

This obsession then leads the person to focus on what they perceive to be the faults of those who "failed" them, not realizing in their crusade that there is more to the story. I've seen it with all sorts of people leaving all sorts of institutions/parties/relationships.

But you seem to have overlooked that my statements are factually correct, and neither you nor anyone else has yet posted any fact-based refutation.

Spinning a fantasy of my supposed "obsession" does not constitute a refutation.

Did you notice that in #394 I wrote: "(If you disagree, please show us specific evidence to support your accusation next time.)" ?

In #399, what evidence do you present to support your new accusations about me? None. No evidence at all.

Please demonstrate the sincerity of your change of course by showing us evidence to support your accusations from now on.

Anyway, to keep this post somewhat on topic, I'll try to answer your question "What is your definition of "spending ... under control"?" Frankly, it is a very loose sort of notion, and the answer I would give might differ from someone else's answer (even if they understood the concept the same way I did). My feeling is that taxes should cover what we, the citizens, collectively want the government to fund. We shouldn't leave the debt for others to pay. We should pay it ourselves.

Okay, that's a straightforward answer.

The trouble is, in our system, it often only takes a majority of politicians to decide to increase government functions.

What do you propose as an alternative?

Furthermore, politicians somehow think that if there is a *projected* surplus then that authorizes them to spend less frugally now (cue the Bush tax cuts). So, somehow, we never seem to be in the black.

Yes, those are obvious faults that spring from human nature. We need to find ways to get around them.

So, on principle, I'm not opposed to raising taxes. However, I'd like to see any tax hikes correspond to actual programs needing to be funded (so the other "consumers" [i.e. citizens] can stop thinking of these programs as free)

Straightforward -- thank you.

and that they be accompanied by serious budget reform. And I'm not talking about 1 trillion is cuts to projected spending, leaving us spending even more money than last year.

What is your definition of "serious budget reform", using positive terminology, not merely negation of one possibility?

[Christenson]

Originally Posted by schickel

What we really need is an interactive tool that shows what making cuts to different programs would do for the whole budget mess....the Sacramento Bee had links to one for California when The Governator was in office and he was duking it out with the legislators over the budget.

Here's an interesting graphic from Barry Ritholtz's blog (~40% is a huge cut!):

Nice and extremely informative! Now what the heck is "discretionary spending"?

I have a question: To what extent does defense spending (especially on weapons engineering programs) constitute a "brain drain" on the rest of the economy? I certainly note that the internet boom happened on the heels of a defense downturn.

[cheesehead]

Originally Posted by Christenson

Now what the heck is "discretionary spending"?

From http://en.wikipedia.org/wiki/United_...budget_process

Discretionary spending requires an annual appropriation bill ... Discretionary spending is typically set by the House and Senate Appropriations Committees and their various subcommittees. Since the spending is typically for a fixed period (usually a year), it is said to be under the discretion of the Congress. ...

Direct spending, also known as mandatory spending, refers to spending enacted by law, but not dependent on an annual or periodic appropriation bill. Most mandatory spending consists of entitlement programs such as Social Security benefits, Medicare, and Medicaid. These programs are called "entitlements" because individuals satisfying given eligibility requirements set by past legislation are entitled to Federal government benefits or services. Many other expenses, such as salaries of Federal judges, are mandatory, but account for a relatively small share of federal spending. ...

Congress can affect spending on entitlement programs by changing eligibility requirements or the structure of programs. Certain entitlement programs, because the language authorizing them are included in appropriation bills, are termed "appropriated entitlements." This is a convention rather than a substantive distinction, since the programs, such as Food Stamps, would continue to be funded even were the appropriation bill to be vetoed or otherwise not enacted.

However, this Wikipedia article has cautions that it needs more citations for verification. Some of its external links are 404ed.

--------------------

Congressional Research Service

"Introduction to the Federal Budget Process"

http://assets.opencrs.com/rpts/98-721_20101202.pdf

This seems mainly to assume that the reader already knows the definitions of terms such as "discretionary" and "direct spending", but it has lots of description, within which is sometimes buried a parenthetical definition.

Example, page 6:

Budgeting for Discretionary and Direct Spending

The distinction drawn by the BEA and the congressional budget process between discretionary
spending (which is controlled through the annual appropriations process) and direct spending
(which is provided outside of the annual appropriations process) recognized that the federal
government has somewhat different, though overlapping, means of dealing with these two types of spending. One set of procedures pertained to discretionary spending, another to direct spending.

-----------

Aah, here we go!

From the GAO:

"A Glossary of Terms Used in the Federal Budget Process"

http://www.gao.gov/new.items/d05734sp.pdf

Discretionary

A term that usually modifies either “spending,” “appropriation,” or “amount.” “Discretionary spending” refers to outlays from budget authority that is provided in and controlled by appropriation acts. “Discretionary appropriation” refers to those budgetary resources that are provided in appropriation acts, other than those that fund mandatory programs. “Discretionary amount” refers to the level of budget authority, outlays, or other budgetary resources (other than those which fund mandatory programs) that are provided in, and controlled by, appropriation acts. (See also Appropriation Act; Appropriations under Forms of Budget Authority under Budget Authority; One-Year Authority under Duration under Budget Authority; Gramm-Rudman-Hollings. For a contrast, see Entitlement Authority; Mandatory.)

But one has to follow several links to other terms in order to get the picture that the Wikipedia article presents in one place.

[ewmayer]

Originally Posted by schickel

Here's an interesting graphic from Barry Ritholtz's blog (~40% is a huge cut!):

Nice, but the lower-right chart "Federal Deficit" again omits the $4.5 Trillion borrowings against the SS and Medicare trust funds. I am thoroughly sick of that bit of fraudulent accounting. You borrowed it, you have to pay it back, hence it's part of the Federal debt. I you have no intention of paying it back then it was in fact a tax all along, meaning you defrauded the American people to the tune of $4 Trillion-plus, and (this is to both of the major parties have that been happily playing these Ponzi accounting games since the late 1960s) your legitimacy as a government is ended. Which is it?

-----------------

Mish reveals why the markets were coughing up hairballs over several of the biggest French banks in the past 2 weeks - Shades of 2008, Bear Stearns, Lehman, etc, a.k.a. "Fun games one can play with one's Tier 1 capital computation":

BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1

[Fusion_power]

The buck does NOT stop here. There are no bucks left. All we have now are dollars and they are pretty much worth the paper they are printed on. I keep hoping a president will have something serious to say about stopping the political maneuvering and get down to doing something about the nations finances. Fat chance.

As an fyi, I am considering selling a few thousand dollars worth of silver coins and a few pieces of gold jewelry that I purchased several years ago as an investment. Anyone interested before I place them on Ebay?

DarJones

[ewmayer]

So the Iowa Straw Poll (a kind of Republican presidential primary) was this past weekend, and Michelle Bachmann, who put huge time and money into courting the voters in that state, won, just ahead of Libertarian, antiwar campaigner and sound-money-advocate Ron Paul. I watched the evening news afterward on the local Fox affiliate, and was startled to hear no mention of Paul ... they mentioned Bachmann, Mitt Romney and Texas governor Rick Perry as the "clear top tier Republican frontrunners". That struck me as bizarre ... and it appears I am (thankfully) not alone in that. This would be merely funny if the media bias weren’t so flagrant (but it’s still pretty damn funny):

Indecision 2012: Jon Stewart On The Ron "13th Floor In A Hotel" Paul Media Blackout

Time magazine also comments on this curious phenomenon:

The Morning After: Jon Stewart Sticks Up for Invisible Man Ron Paul

I vaguely remember a time, years ago, when now-Fox-chief-anchor-shill Chris Wallace was actually a respected newsman. Performances like you see in the Daily Show clip make the following quote of his (from the above Wikipage) especially ironic:

“After another 14 years at ABC, Wallace left in 2003 to join the Fox News Channel. He has remarked in the past that his work at Fox opened his eyes to what critics cite as bias in the mainstream press."

And note that it’s not just the right-biased media which engage in this sort of thing: See if you find any mention of Rep. Paul in this New York Times piece.

Rock Musician and satirist Frank Zappa may have said it best in his song I’m the slime (oozing out from your TV set):

You will obey me while I lead you
And eat the garbage that I feed you
Until the day that we don't need you
Don't go for help...no one will heed you
Your mind is totally controlled
It has been stuffed into my mold
And you will do as you are told
Until the rights to you are sold.

[R.D. Silverman]

Originally Posted by ewmayer

So the Iowa Straw Poll (a kind of Republican presidential primary) was this past weekend, and Michelle Bachmann, who put huge time and money into courting the voters in that state, won, just ahead of Libertarian, antiwar campaigner and sound-money-advocate Ron Paul. I watched the evening news afterward on the local Fox affiliate, and was startled to hear no mention of Paul ... they mentioned Bachmann, Mitt Romney and Texas governor Rick Perry as the "clear top tier Republican frontrunners". That struck me as bizarre ... and it appears I am (thankfully) not alone in that. This would be merely funny if the media bias weren’t so flagrant (but it’s still pretty damn funny):

Indecision 2012: Jon Stewart On The Ron "13th Floor In A Hotel" Paul Media Blackout

Time magazine also comments on this curious phenomenon:

The Morning After: Jon Stewart Sticks Up for Invisible Man Ron Paul

I vaguely remember a time, years ago, when now-Fox-chief-anchor-shill Chris Wallace was actually a respected newsman. Performances like you see in the Daily Show clip make the following quote of his (from the above Wikipage) especially ironic:

“After another 14 years at ABC, Wallace left in 2003 to join the Fox News Channel. He has remarked in the past that his work at Fox opened his eyes to what critics cite as bias in the mainstream press."

And note that it’s not just the right-biased media which engage in this sort of thing: See if you find any mention of Rep. Paul in this New York Times piece.

Rock Musician and satirist Frank Zappa may have said it best in his song I’m the slime (oozing out from your TV set):

You will obey me while I lead you
And eat the garbage that I feed you
Until the day that we don't need you
Don't go for help...no one will heed you
Your mind is totally controlled
It has been stuffed into my mold
And you will do as you are told
Until the rights to you are sold.

See:

http://www.nytimes.com/2011/08/15/op...rich.html?_r=2