Archive for the ‘social security reform’ Category

GWB: The Cash In The Cradle & The Silver Spoon - I’m Gonna Be Like Him

Friday, March 14th, 2008

I try to avoid making unequivocal assertions…but if my instincts are correct, I’m not taking much of a risk in predicting that the calamity that will define this Bush presidency will not be the Iraq war. As with his father’s presidency, it will be the economy. Yes, the Iraq war will be factored into the equation that facilitated one of the worst recessions in modern times, but numerous other missteps will receive far more attention.

With the Savings and Loan scandal of the late 80’s as my point of comparison, I expect the magnitude of this recession to be much deeper and far more complex. Frankly, the fact that we survived events like the S & L scandal and the tech bubble have only contributed to the lackadaisical policies that have fostered an air of invincibility. This false confidence has resulted in a deadly conflation of economic poisons that will place a strain on our financial fortitude that hasn’t been witnessed since the Great Depression.

For months, the Bush administration has sought to convince the American public that the economy is sound. Unfortunately, the hollowness of those assurances expands exponentially with each new report. Today’s news is awash with further warnings of economic uncertainty. The President’s remarks, in response to the growing storm clouds, simply highlight the mindset that has typified his inclination to ignore information that doesn’t comport with his rose colored rhetoric.

Unfortunately, I fear this president suffers the misconception that he can tackle this systemic economic malaise in the same manner he addressed the many miscalculations that have plagued the prosecution of the Iraq war. Sadly, brute force has little relevance when it comes to the economy. As with the troop surge, the attempts by the Federal Reserve to pump more money into the economy in order to prop up flailing financial institutions fails to address the dire dynamics that underly the debacle.

Let’s pause to review the observations of others.

From The Wall Street Journal:

It is a very logical progression. Peloton, Carlyle, Focus — hedge funds and other non-deposit-taking financial institutions (NDFIs) are now being hit by the credit crunch, which had so far been mainly confined to mortgage lenders and the banks.

The Federal Reserve has reacted. Its Term Securities Lending Facility aims to encourage investment banks and prime brokers to lend to NDFIs and so relieve those parts of the credit market it cannot reach with its rate cuts and loans to banks.

So far its liquidity injections have got no further than the banks. Now it hopes to reach higher. Unfortunately, it won’t work.

The Fed is like King Canute with a difference — it is trying to halt an ebbing tide rather than a rising one. Its liquidity injection seems huge at $200 billion (with perhaps more to follow), but it is still only equivalent to one-third of the expected losses in the NDFI sector.

Moreover, the Fed’s readiness to accept almost any asset at just below face value as collateral will prevent price discovery. That means the U.S. financial system will remain burdened with uncleansed balance sheets that penalize future lending and economic growth.

Creating a lot of liquidity does not resolve an issue of solvency, which is now the driver of credit contraction. All the Fed will achieve is a dollar that will be further debased and inflation that will be higher. It cannot stop the process of deleveraging and asset price decline.

The credit crisis is unfolding as we expected, but more slowly than anticipated, because of the actions taken by central banks (mainly the Fed) and the U.S. government to allay its effects. The wholesale socialization of credit has meant that government and central bank measures account for 70% of new credit since last summer.

But these policy measures will not prevent asset-price deflation or credit contraction, which are functions of risk appetite and general readiness to maintain current levels of gearing throughout the economy. The non-bank sector has the potential to inflict more damage on the system than banks, because it has a much smaller capital cushion for a much more volatile and risky balance sheet.

Credit contraction translates through the financial system into a reduction in available credit for the non-financial corporate sector, and thus into reduced investment and growth in the real economy. The size of that contraction can be estimated from the leverage ratios of the financial sector and their impact on real GDP growth.

We estimate that nonfinancial corporate debt ultimately will have to shrink by 11%-12%. This will generate a decline of five percentage points of real U.S. GDP growth and push the U.S. into recession. Europe’s real GDP growth will contract by two percentage points.

Essentially, the point being made by the author is that the Federal Reserve’s efforts to lower interest rates is inadequate to address the fundamental problem - the value of the assets that underly much of the existing debt is in a period of contraction…largely as a result of the collapsing housing industry.

As such, the ability of lenders to lend is limited. They lack the capital needed to make loans; let alone the capital required to support declining equity positions and the increasing default risks that are associated with these loans. Hence, the Fed’s efforts to infuse the economy with the capital needed to spur growth isn’t going to be sufficient. Even worse, should this contraction lead to lender insolvency, the likelihood of the need for a huge government bail out advances. If this happens, I believe it will be far larger than the one witnessed during the S & L scandal.

From The New York Times:

The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed and can convert into green paper at will.

When the Fed is worried about the state of the economy, it basically responds by printing more of that green paper, and using it to buy bonds from banks. The banks then use the green paper to make more loans, which causes businesses and households to spend more, and the economy expands.

This process can be almost magical in its effects: a committee in Washington gives some technical instructions to a trading desk in New York, and just like that, the economy creates millions of jobs.

But sometimes the magic doesn’t work. And this is one of those times.

Instead of following its usual practice of buying only safe U.S. government debt, the Fed announced this week that it would put $400 billion — almost half its available funds — into other stuff, including bonds backed by, yes, home mortgages. The hope is that this will stabilize markets and end the panic.

Officially, the Fed won’t be buying mortgage-backed securities outright: it’s only accepting them as collateral in return for loans. But it’s definitely taking on some mortgage risk. Is this, to some extent, a bailout for banks? Yes.

Still, that’s not what has me worried. I’m more concerned that despite the extraordinary scale of Mr. Bernanke’s action — to my knowledge, no advanced-country’s central bank has ever exposed itself to this much market risk — the Fed still won’t manage to get a grip on the economy. You see, $400 billion sounds like a lot, but it’s still small compared with the problem.

Krugman offers a look into the risks being taken by the Federal Reserve to avert the looming collapse of financial institutions. The fact that the government is taking unprecedented risk signals the seriousness of the situation. The fact that the government has committed half of its available funds to this risk intensive effort suggests that the ultimate solution will require the government to appropriate additional funds…hence the bailout begins. The price tag of the S & L scandal would likely pale in comparison.

The impact to the overall economy could be mind-boggling since it would be apt to affect consumer spending. Falling home values would strip millions of Americans of the bulk of their accumulated wealth which would no doubt restrict their ability and willingness to spend money. The direct correlation of this intertwined cause and effect spiral could have disastrous consequences.

We haven’t even factored in the disproportionate numbers of baby boomers moving towards retirement. A worst case scenario could place the financial stability of many of these individuals in jeopardy at a time when the safety net of Social Security is also approaching insolvency.

From CNBC:

The United States has entered a recession that could be “substantially more severe” than recent ones, former National Bureau of Economic Research President Martin Feldstein said Friday.

“The situation is very bad, the situation is getting worse, and the risks are that it could get very bad,” Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

“There isn’t much traction in monetary policy these days, I’m afraid, because of a lack of liquidity in the credit markets,” he said.

The Fed’s new credit facility, announced on Tuesday, “can help in a rather small way … but the underlying risks will remain with the institutions that borrow from the Fed, and this does nothing to change their capital,” Feldstein noted.

I simply don’t see the mechanism by which this strained liquidity can be alleviated in the near term. Pumping more cash into the system could have short term benefits but the risk to the already tenuous value of the dollar would likely outweigh them. Relying upon the standard bearers…the consumer…to spend us out of this mess seems unlikely. Rarely have prior recessionary periods been accompanied by such significant declines in home values.

Were we to see the emergence of sustained inflation, the picture becomes even more disconcerting. Many of the measures designed to address the liquidity crunch have the potential to do just that. Toss in our trade imbalance, the amount of debt held by the Chinese, and an international shift away from the dollar as the preferred reserve currency and one begins to see the growing alignment of negatives.

The fact that the American image has been tarnished during the current administration makes it difficult to imagine the kind of international cooperation we might have otherwise received during such a slowdown. In fact, don’t be surprised if a number of nations stand idly by as the perceived bully endures its comeuppance.

Returning to the Bush legacy, I recall the deteriorating situation faced by his father prior to the 1992 election. When the senior Bush expressed his amazement with the scanning technology found in grocery stores, his appeal and his connection to the average American is thought to have suffered. When the Clinton campaign added, “It’s the economy, stupid”, the stain became permanent.

The fact that the current president expressed surprise when a member of the press mentioned the prospects of $4.00 per gallon gas seems eerily similar to the last days of his father’s presidency…and it may also assist in cementing the economy as his legacy’s leading albatross.

George W. Bush’s seeming shortage of empathy for the plight of the average American shone through in his mishandling of Katrina, his passage of tax cuts for the wealthiest, his inept energy policy, and his willingness to sink trillions of dollars into the execution of a virtual vendetta in Iraq. These events will forever be tethered to his tenure and his successors are apt to spend years trying to repair the damage done.

They say the writing of one’s legacy is rarely finished since the past undoubtedly shapes the future. In the case of George Bush, I suspect he’d be best to hope that his influence on the future be less indelible than his unabashed attempts to color the present.

Gertrude Stein stated that a “rose is a rose is a rose”. Ernest Hemmingway responded with “a rose is a rose is an onion”. In thinking of the Bush legacy, I’m inclined to argue that a silver spoon may beget rose colored rhetoric…but a silver spoon full of rose petals rarely helps us swallow the thorns. When the bow breaks, the Bush legacy will fall.

Cross-posted at Thought Theater

Biggest lies of the year..part deux

Sunday, December 30th, 2007

I report..you decide..all of this is from FactCheck.org:

Rudy’s Adoption Deception

Republican presidential candidate Rudy Giuliani claimed adoptions went up 65 percent to 70 percent when he was mayor of New York City, when in fact adoptions at the end of his tenure were only 17 percent higher than at the start, and they were falling. His manipulation of official statistics was a classic case of using data selectively to create a false impression.

Levitating Numbers May 7, 2007

Rudy’s False Cancer Claim

Giuliani claimed in a radio ad that men suffering from prostate cancer have only a 44 percent survival rate under England’s system of “socialized medicine.” The true figure is 74.4 percent. Giuliani’s bogus statistic was the result of bad math by a campaign adviser with no particular expertise in cancer research. It was denounced by any number of cancer experts including one who called it “nonsense.” Giuliani stubbornly refused to admit his error, claiming the 44 percent figure is “absolutely accurate.” It isn’t.

A Bogus Cancer Statistic October 30, 2007

Bogus Cancer Stats, Again November 8, 2007

Rudy’s Inflated Cop Count

Giuliani falsely claimed that he grew New York City’s police force by 12,000 officers, but 7,100 of those he counted were already housing or transit police who were simply merged into the New York Police Department. The actual increase in the size of the city’s uniformed police officers was about 3,660, or about 10 percent, and the cost of hiring about 3,500 of them was partially covered by the federal government under President Bill Clinton.

Cop-Counting Cop-Out October 9, 2007

Rudy’s Bogus Crime Claim

A Giuliani TV ad falsely claimed New York City experienced “record crime … until Rudy.” In fact, the city recorded its highest rates of both violent crime and property crime years before he took office. The downward trend was well established before he was sworn in.

The Not-Quite Truth About NYC November 27, 2007

Rudy’s Tax-Cut Puffery

Giuliani constantly repeated that he “cut or eliminated 23 taxes” while mayor of New York City, but eight of those were initiated at the state level, with the mayor cheering from the sidelines. A ninth cut, one of the largest, was opposed by Giuliani in a five-month standoff with the City Council, until the mayor finally acquiesced. He can properly claim credit for initiating only 14 of the cuts.

Giuliani’s Tax Puffery July 27, 2007

Richardson’s Job Inflation

Democratic presidential candidate Bill Richardson continually boasted of creating 80,000 jobs since becoming governor of New Mexico. But official figures showed a 68,100 gain when he first started making this inflated boast. He based his claim on a definition of “jobs” that includes unpaid workers in family businesses and freelancers who don’t draw a paycheck.

Richardson also claimed he “made New Mexico 6th in job growth,” when the state already ranked 6th for the 12-month period before he took office and later fell to 17th under Richardson’s stewardship.

Richardson’s Job Boast August 22, 2007

Richardson Flunks Math and Science

Richardson also claimed over and over that U.S. students rank 29th in the world in math and science. Not true. The two leading international assessments of student achievement rank U.S. students better in all cases, and in most cases much better, than Richardson claims. U.S. students do post mediocre scores compared with those of other industrial nations, but Richardson is using a fanciful number that paints too dark a picture.

Richardson Flunks Two Subjects September 12, 2007

Mitt’s Immigration Malarkey

An ad by Romney in New Hampshire claimed that his rival John McCain “voted to allow illegals to collect Social Security.” That’s untrue. Nobody who is in the country illegally could be paid any Social Security benefits under McCain’s immigration bill. What McCain and 10 other Senate Republicans voted against was an effort to strip illegal aliens of a right they currently have: to apply the taxes they paid and the time they worked while in the country illegally as credit toward future Social Security benefits if and when they become citizens or legal residents.

The same ad said one of the differences between the two candidates is that Romney “opposes amnesty” for illegal immigrants. But Romney himself once called McCain’s immigration bill “reasonable” and said it was “quite different” from amnesty. Indeed it was. The McCain bill would have required those here illegally to pay thousands of dollars in fines and fees to gain legal status.

In an earlier TV ad, Romney cast himself as tough on illegal immigration, saying “I authorized the [Massachusetts] State Police to enforce immigration laws.” He doesn’t mention that his order never took effect. It came in the closing days of his administration and was rescinded by his successor

More Mitt Malarkey December 28, 2007

Tough Guy on Immigration? November 9, 2007

Mitt’s Meth Miss

Yet another Romney ad attacked Huckabee in Iowa, claiming Romney “got tough on drugs like meth” in Massachusetts while Huckabee “reduced penalties for manufacturing methamphetamine” in Arkansas. But the legislation Romney supported never passed. Furthermore, convicted meth dealers face prison terms in Arkansas that are four times longer than those in Massachusetts, even after the reductions Huckabee supported. The reductions were drafted with help from Arkansas state prosecutors to ease prison overcrowding.

Romney on Huckabee II December 19, 2007

Mitt Mauls History

Romney claimed that Democratic President Clinton “began to dismantle the military,” but really it was Republican President George H.W. Bush who started making deep cuts in defense budgets years before Clinton took office.

More Mitt Missteps July 9, 2007

Hillary’s Trumped-up Troop Claim

In a TV ad for her presidential campaign, Sen. Hillary Clinton falsely claimed that members of the National Guard and military Reserve didn’t have health insurance until she and a GOP colleague took action. “You would think that after all the sacrifices and service of the National Guard and Reserve protecting our country, they would have had health insurance. But they didn’t.”

In fact, most of them did. All active-duty Guard and Reserve troops were covered by federal insurance long before she became a senator. Furthermore, four out of five non-active-duty guardsmen and reservists also were covered by their civilian employers or other sources. Clinton did help expand and enhance government health care coverage for reservists but can’t claim credit for creating coverage where none existed, as this ad implied.

Exaggerating Help for Troops December 20, 2007

Huckabee’s Tax Hooey

* Huckabee tried to duck charges of being a tax increaser by claiming an Arkansas gasoline tax hike passed after 80 percent of state voters approved it. But the referendum vote on highway repairs didn’t occur until after the tax was increased.

Huckabee also claimed repeatedly that he cut taxes “almost 94 times,” sliding by the fact that 21 other taxes were raised during his tenure, resulting in a net tax increase.

Huckabee’s Fiscal Record November 21, 2007

“FairTax” Falsehoods

Proponents of the so-called “FairTax,” prominently including Huckabee, claimed that a national sales tax of 23 percent could replace both the federal income tax and Social Security taxes, and eliminate the Internal Revenue Service.

In truth, the actual rate of the proposed tax would be 30 percent, when calculated the same way as state and local sales taxes. And it would have to be 34 percent to raise the same revenue as the taxes it would replace, according to a bipartisan presidential commission. The FairTax would, for example, raise the price of gasoline by roughly $1 per gallon at today’s prices and cause a $150,000 new home to cost at least $195,000 including the 30 percent tax.

And while the Internal Revenue Service might disappear, two new federal bureaucracies would be needed: one to administer the sales tax and another to keep track of sending out hundreds of billions of dollars in checks every year to compensate taxpayers for the regressive nature of sales taxes. The proposal calls for “prebates” to all taxpayers of all taxes paid on purchases up to the poverty level. That of course would require an IRS-like system to validate each person’s income and the amount of “prebate” they are due.

Unspinning the FairTax May 31, 2007

Edwards’ Empty Threat

Former Sen. John Edwards said, both in a TV ad and constantly on the campaign trail, that as president he’d tell Congress to act within six months to make sure all Americans have health insurance or “I’m going to use my power as president to take your health care away from you.” But he would have no such power. Lawmakers have health coverage granted by law, not by executive fiat.

Edwards’ Empty Threat November 13, 2007

McCain’s Supply-side Spin

McCain claimed the major tax cuts passed in 2001 and 2003 “dramatically increased revenues” and that tax cuts in general increase revenues. Not true. The Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation, the White House’s Council of Economic Advisers and a former Bush administration economist all said that tax cuts lead to revenues that are lower than they otherwise would have been – even if they spur some economic growth.

Supply-side Spin June 11, 2007

McCain’s Impossible Energy Dream

McCain promised that if elected he’d set up a massive government program to develop alternate energy sources and “we will in five years become oil independent.” But the U.S. imports two-thirds of its oil, and dependence is growing. Experts we consulted said McCain’s five-year goal is an impossibility. “There’s just no way,” said Frank Verrastro, director of the Energy and National Security Program at the Center for Strategic and International Studies. “You can’t institute technological change that quickly.” Studies assessing how to achieve energy independence set target dates ranging from 2025 to 2040.

Republicans Debate in Iowa December 12, 2007

Scott Olson/Getty Images
Biden’s Bogus Labor Boast

Sen. Joe Biden claimed during a Democratic forum to have a labor record equal to or better than all the candidates present that evening:

Biden: Look at our records. There’s no one on this stage, mainly because of my longevity, that has a better labor record than me.

Actually, all the candidates on the stage had a better lifetime labor record than Biden, as measured by the AFL-CIO’s ratings of Senate and House votes. Rep. Dennis Kucinich and Edwards had the best ratings, tied at 97 percent for their congressional careers. Biden’s lifetime rating brought up the rear at 85 percent.

AFL-CIO Democratic Forum August 8, 2007

Democratic Hot Air on Medicare

Democrats made a false promise to senior citizens by claiming that they had a painless way to bring about lower prices on pharmaceuticals. Michigan Rep. John Dingell summed up his party’s empty promise during House debate on their bill, H.R. 4:

Dingell: This legislation is simple and common sense. It will deliver lower premiums to the seniors, lower prices at the pharmacy and savings for all taxpayers.

That claim was contradicted by a number of experts including the nonpartisan Congressional Budget Office and the chief actuary of the Medicare system. Both said the bill wouldn’t bring the lower prices Democrats promised, because it wouldn’t have allowed the federal government to set up a “formulary” of approved medications for Medicare, such as the one the Veterans Administration uses to squeeze price concessions from drug companies for the drugs it covers. Formularies can be unpopular with patients if preferred drugs aren’t covered. The Democratic bill would require federal officials to negotiate while denying them any leverage. The bill passed the House but the Senate took no action.
Medicare Hot Air January 17, 2007

Bush Baloney on Children’s Health

President Bush falsely claimed that a proposal to expand the 10-year-old federal SCHIP program “would result in taking a program meant to help poor children and turning it into one that covers children in households with incomes of up to $83,000 a year.” That wasn’t true. Nothing in the proposal would have forced coverage for families earning $83,000 a year.

Actually, the Urban Institute estimated that 70 percent of children who would gain coverage under the bill that Bush attacked (and later vetoed) are in families earning half the $83,000 figure Bush used. One state, New York, had proposed (under current law) to allow families of four with incomes up to $82,600 a year to be eligible, but the administration successfully prevented that from happening.

Furthermore, the program wasn’t aimed at “poor” children as Bush claimed. Those in poverty generally are covered under Medicaid already. SCHIP was aimed at children in families without health coverage and with incomes that are above the poverty level.

Bush’s False Claims About Children’s Health Insurance September 21, 2007

Bush’s Iraqi Exaggerations

Bush played loose with the facts in an address address to the nation on Iraq. He said “36 nations … have troops on the ground in Iraq.” In fact, his own State Department put the number at 25. The White House later said the president was counting some nations that had troops in the country temporarily as part of a military exercise. Bush also said the city of Baqubah in Diyala province was “cleared.” But the Washington Post quoted a State Department official as saying the security situation there wasn’t stable at the time.

Operation Iraqi Gloss-Over September 14, 2007

Off-Base About Offshoring

An ad by a labor union PAC supporting Democratic presidential candidate Edwards in Iowa implied that the closing of a Maytag factory in the state and the loss of 1,800 jobs were due to “tax breaks to companies that move jobs offshore.” And it said Edwards would end such breaks. But the jobs didn’t move offshore. They were sent to Ohio. And eliminating the “tax breaks” in question probably wouldn’t do much to keep jobs in the U.S.

Not Working 4 Edwards December 19, 2007

“Lawsuit Abuse” Nonsense

The U.S. Chamber of Commerce ran a TV ad claiming that “lawsuit abuse” is costing “your family” $3,500 a year. But that figure came from a study estimating the cost of all suits, not just abusive ones. The author of the study called the chamber’s ad “misleading.”

A False Ad About ‘Lawsuit Abuse’ May 11, 2007

by Brooks Jackson, with the staff of FactCheck.org

So, there you have it..all the lies and bs from both sides of the aisle..it’s a doozy ain’t it?

The “Silver Tsunami” Begins

Tuesday, October 16th, 2007

As the first official “baby Boomer” prepares to receive her first Social Security retirement check, government officials brace for what they call the “Silver Tsunami,” a gigantic wave of retirees knocking on the vault door in search of the retirement benefits they were promised throughout the working lives, and indeed paid for. Conservatives like to deride the social security program as an “entitlement” program, as if being entitled to receive something you paid for is some kind of crime. Funny how you don’t hear any of them crying about the tax cuts for the richest Americans as a bad thing, even though that was a gift that was neither paid for or promised to anyone.

We all know that Social Security has serious funding problems, thanks in large part to decades of malfeasance by the federal government as they raided this “dedicated fund” to pay for all sorts of non-retirement, non-disability kinds of things with that money.

And we all know that most politicians are not eager to “fix” the problem for a variety of reasons, chief among them is that they want an available slush fund handy. But they are also mostly unconcerned with the plight of average Americans since they have quite nice federal retirement packages apart from the Social Security system.

I’ve written extensively about how Social Security can be reformed and possibly saved for today’s and future generations. Rather than rehash all that here, I’ll offer links to the original posts.

Post 1- Defining Social Security

Post 2- Crafting A National Pension Plan

Post 3- The National Whole Life Pension Plan

Post 4- Salvaging Social Security’s Retirement Benefits

This series looks at the benefits of having a national retirement system, provides a plan for funding benefits for future generations and talks about how to salvage the most from the current system.

Read the posts, then we can discuss the issue…


Fish.Travel