Market

[pwd72s]

Originally Posted by Hugh R

John,

You seem to be the money guy, not me. But if the government has $10 Trillion in debt and they seized my IRA and wrote me a 3%/year IOU wouldn't that give them some $4.5 Trillion that they can't get their hands on right now? They could do this in lieu of printing more money and pushing inflation.

My thinking as well, Hugh...it's simply robbing/"borrowing" from the Market....and who is out there to prevent them once they control all...both Senate & Congress & the white house?

[jyl]

OK, now you guys are wearing the tinfoil hats.

Do you seriously think the govt could, or would even try, "seizing" $9TR in individual 401Ks and IRAs in return for an IOU?

Have you thought through how voters would react to confiscation of their retirement savings? Have you thought through how the credit markets and buyers of govt bonds would react to an instant doubling of the national debt? Have you thought through how the stock and bond markets would react to $9TR of securities suddenly owned by the govt?

And have you thought through what the govt could actually do with $9TR of assorted securities? Can't pay bills with a stock certificate. The govt would have to convert that $9TR of securities into cash, which means selling $9TR of stocks and bonds. The total capitalization of the entire US stock market is appx $15TR. What happens when $9TR of selling pressure hits a $15TR market, and potential buyers have just had their accounts seized so exactly who is left to do the buying? That market declines 80%, 90%. So the govt then has about $1TR for its trouble.

This should take about 5 seconds to think through.

This tangent is a waste of time. Honestly, let's debate a tougher question, like whether the moon is made of cheese.

[pwd72s]

Hey, Hugh & I didn't come up with this proposal...congressional leadership has.

Going to go make my tinfoil hat now. Want me to make one for you, Hugh?

Evidently we don't hold the same trust for Government to do the right thing that John does...

[jyl]

Look, guys, the govt is not a bunch of dumb*****s.

Okay, maybe some individual Congressmen are. But the people at Treasury, at the Fed, on Barney Frank and Chris Dodds' staffs, etc - they are not stupid at all. Actually they are pretty damn smart. It simply so happens that this is a big, complex, rapid, evolving crisis that is beyond any easy insta-solution.

I've been watching the govt grapple with this crisis. I don't agree with plenty of their decisions. But all those decisions have at least been rational choices, based on reasonable economic and capital markets analysis. None have been crazy whack ideas that could only be dreamed up by drunks in a bar. Which is what this "seize the accounts" idea is.

So, I stand by what I said: the govt is not this stupid.

[jyl]

Where do you get that "congressional leadership" is proposing this?

I read your link. A congressman is wringing his hands over the decline in 401k accounts. Some professor floated an idea (which wasn't even the "seize accounts" that Hugh described). That's it. Like I said, lots of proposals get "testified" before congressional committees, or even mentioned by individual congressmen, and 99% of them are vapor.

[pwd72s]

Time will tell. But John, I kind of resent that you chose to call Hugh and I stupid by suggesting we had tinfoil hats. Uh...all I did in my first post was pass along info I had received from reliable sources.

And yes, history has shown congress to be stupid...many times. You think now that the libs will soon be in charge, it'll suddenly be smarter?

[jyl]

Sorry if I offended you.

But how Hugh described the idea is not how it was proposed in the testimony. And your statement that it was proposed by congressional leadership is untrue. And the idea is a tinfoil hat one, so as far as I am concerned, anyone how predicts it will happen is wearing foil.

[lukeh]

Originally Posted by jyl

Look, guys, the govt is not a bunch of dumb*****s.

Okay, maybe some individual Congressmen are. But the people at Treasury, at the Fed, on Barney Frank and Chris Dodds' staffs, etc - they are not stupid at all. Actually they are pretty damn smart. It simply so happens that this is a big, complex, rapid, evolving crisis that is beyond any easy insta-solution.

I've been watching the govt grapple with this crisis. I don't agree with plenty of their decisions. But all those decisions have at least been rational choices, based on reasonable economic and capital markets analysis. None have been crazy whack ideas that could only be dreamed up by drunks in a bar. Which is what this "seize the accounts" idea is.

So, I stand by what I said: the govt is not this stupid.

It's not? Don't they run a social security system that my statement just told me is going broke? Haven't they run up a trillion dollar debt by constantly spending more than they take in. Hasn't health care gone through the roof. Isn't our country's infrastructure in some kind of crisis. Aren't we at war? And this isn't stupid? So how about you tell me all the smart things they've done the past few decades? Or at least tell me what problems they've solved or avoided vs. the trouble they've gooten us into.

[jyl]

Yes, some politicians' actions are stupid, and ultimately so are the voter who elect and re-elect them.

But then there are ideas that are so utterly and obviously unworkable and impractical, as to be total non-starters - even for politicians and their voters. I am saying that the idea of the govt "seizing" 401k/IRAs and replacing them with 3% coupon IOUs is one of those.

[lukeh]

Originally Posted by jyl

Yes, some politicians' actions are stupid, and ultimately so are the voter who elect and re-elect them.

But then there are ideas that are so utterly and obviously unworkable and impractical, as to be total non-starters - even for politicians and their voters. I am saying that the idea of the govt "seizing" 401k/IRAs and replacing them with 3% coupon IOUs is one of those.

Honestly, do you think this 401k idea is any dumber than spending more than you take in until the point that you are a trillion dollars in debt? Stop and think about this a second. At one point we were a billion in the hole. Then it was 10 billion. Then it was 100 billion, then it was a trillion. Then it was... And all this time it never dawned on the Government this was a bad idea? And if they did figure it out they never thought to do something about it. How are those actions any dumber than the 401k idea? Do you realize what the interest is on the debt?

And as for the stupid voters you mentioned, since we first started running a deficit haven't all of them been turned over numerous times? In other words, no matter who was in office or what party was in charge the deficate has continued to grow? So how can you call the voters stupid in this case?

[87coupe]

"deficate has continued to grow" lol, priceless. Did you mean deficit? Fruedian slip

[jyl]

The voters are stupid because they watched the structural national debt grow and failed to demand that it stop.

Some actually believed the idea that cutting taxes somehow increases tax revenue. You know, the so-called "supply side" nonsense.

Others actually believed the budget can be balanced merely by cutting unspecified "fraud and waste", without any actual pain.

Too many are myopically selfish. Right now they are freaking out about raising the top marginal tax rate to 39%, screaming that it'll destroy the country, when in fact the top marginal rate has been higher for most of the past 100 years.

Most of them fail to notice that the deficit has not in fact always continued to grow, and don't seem to distinguish between the govts that ran big deficits and those who ran small deficits.

See this chart, annual federal budget deficit as % of GDP. http://traxel.com/deficit/deficit-percentage-50-years.png In some administrations, the deficit has been high. Very high during Reagan and Bush2, even though they supposedly presided over economic expansions, when the deficit should naturally tend to be lower. Also high during Carter and Bush1, more understandable since they presided during recessions, when the deficit should naturally tend to be higher. Fell and went into actual surplus during Clinton, which is what should happen during economic expansions.

The federal govt should tend to have a surplus during economic expansions, and a deficit during economic recessions. This is basically mechanical - tax revenues are naturally higher in expansions and lower in recessions. The result should allow the govt to play its "shock absorber" role - when the economy is in trouble, government spending helps cushion the downturn, and that money gets in effect paid back with increased tax collection when the economy is booming. That way, the government runs a balanced budget over the economic cycle.

But in two of the last three economic expansions (the 1980s and the 2000s) that has not happened. Deficits actually rose while the economy expanded, because the govt cut tax rates and increased spending. Only in the 1990s expansion did deficits actually decline, because the govt raised taxes and controlled spending.

Now, take 100 random voters in the US, how many do you think really understand the above? Let's even include those who may not agree w/ the above, but have carefully thought these issues through and arrived at a reasoned contrary opinion. I think it would be less than 20. The rest of them choose their govt based on he sounds like a patriotic American, he'd be a good guy to drink beer with, he's a good Christian, she looks hot and can butcher an elk, he's got a weird name, and other stupid irrelevancies.

That's why I think voters, as a group, are stupid. Not singling out any individual here, the fact that PPOT'ers here actually seek out discussion on these things makes them a "cut above" in my view.

See for more charts
http://www.factcheck.org/elections-2004/biggest_deficit_in_history_yes_and_no.html

[djmcmath]

JYL, good analysis. I've actually never thought about it that way -- gov't as shock absorber, I mean. Whether or not I agree with it is irrelevant, it's a pretty good idea. And I'd be willing to bet that far fewer than 20 in 100 randomly selected voters understand that concept.

... If it worked perfectly, the gov't would only be in debt during a downturn, right? I mean, optimally, during the boom times, the gov't would be thoroughly in the black, with no debt ... right?

So the answer, the fix for this massive deficit problem is at least partially voter education. The trouble is that the education needs to happen on a grand scheme, such that concepts like you describe above are household-level ideas. When that happens, the people that the parties pick have no choice but to talk to these things. As it stands right now, I don't believe that either of the major options we had in this last election would have managed the deficit like you suggest it should be done. People have really forgotten about the deficit, I think, at a "Main St." level -- nobody really talks about it much.

Dan

[DanielDudley]

I have been waiting for the election to pass. Now the reality of the situation will unfold, and anything that was being held back will leak out.

I'm pretty sure there is still a lot that hasn't hit the funny pages. It was fair of Obama to point out that this will be the economc crisis of our generation.

At least he isn't sugar coating it. If we hit it dead on and square, we will probably get by. Not very pretty though.

[lukeh]

JYL, that sounds nice and all but I don't think you answered my question. Isn't the government as a whole stupid because they spend more than they bring in? The people in office have changed over the past few decades but none of them did anything about the deficit and most made it worse. Isn't that the government being stupid? Take a look at my link and tell me who is solving the problem.

http://www.cedarcomm.com/~stevelm1/usdebt.htm

[competentone]

Originally Posted by Porsche-O-Phile

Gold? Bah. Worthless metal unless you're a dentist. Better - I've got ammo. Lots of it.

Gold has quite a few more uses than in dentistry!

In a currency collapse, money-substitutes will be a necessity -- our technologically advanced society needs the tool of money as a medium of exchange; direct barter used on a wide-spread basis is simply not possible in our economy.

History has demonstrated that gold and silver are the "sound currency" economies return to after they have been ravaged by government fiat currencies.

Ammunition might actually be an efficient money substitute in some trading, but it (and the materials it is made of) is really too abundant to be long-term effective "money."

Of course, ammunition -- and the materials it is made of -- is still much more scarce than paper, so ammo would still be a better place to have savings than in paper fiat money.

[djmcmath]

I don't keep my money in the Fiat. I store mine in the BMW. Never liked Italian cars, anyway.

[competentone]

Originally Posted by djmcmath

I don't keep my money in the Fiat. I store mine in the BMW. Never liked Italian cars, anyway.

LOL!

That's a good one.

[jyl]

This might be getting down to semantics.

Except for the 1990s (Clinton), since the 1960s the govt has run a structural deficit (meaning a deficit over the whole economic cycle), which I consider a bad, aka very stupid, policy.

But this policy has been good, aka very smart, for the politicians who were in office at the time.

Look at Bush2 - he cut taxes and grew spending, thus ballooning the deficit. This was smart and good for him - he satisfied his ideological base, pursued his expensive goals, bought votes with huge spending programs like the Medicare drug benefit, avoided tough budget decisions, and dumped his huge deficits to the next president. He also kept promising voters that the deficit would shrink "next year", and manipulated expectations so that $350BN deficits were hailed as not so bad. That was all pretty darned smart - for Bush2 and his people. Same comment for the other Presidents and the legislators who have been fiscally irresponsible - they were smart, for their own self-interest.

That's how I see it - the govt's deficit is bad (stupid) but running that deficit has been good (smart) for the politicians who the voters elect to run govt. The politicians get elected, re-elected, and retire successfully, leaving more deficits. And the voters don't seem to notice this, they have the attention span of a gnat. Who's the stupid one?

That's why I respect candidates who honestly tell us that they will raise taxes. But they seldom get elected.

Originally Posted by lukeh

JYL, that sounds nice and all but I don't think you answered my question. Isn't the government as a whole stupid because they spend more than they bring in? The people in office have changed over the past few decades but none of them did anything about the deficit and most made it worse. Isn't that the government being stupid? Take a look at my link and tell me who is solving the problem.

http://www.cedarcomm.com/~stevelm1/usdebt.htm