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Tom Coburn is a Big Fat Jerk


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Saturday, December 11, 2004

The Silence of the Economists

A peculiar silence has fallen over the economic pundits in the last week or so. Whether this is in response to the sacking of virtually the entire Bush economic team, including John Snow and Greg Mankiw or the manic depressive wafflings of Stephen Roach, I can't say.

The only sage advice to be found this week is scattered throughout the econosphere, and that is to repeat as often as possible and to anyone who dares suggest otherwise:

There is no Social Security Crisis; there is only a crisis of the General Fund.

And two guesses who is at fault for that.

8 Comments:

At 3:21 PM, Blogger Rob said...

True, social security itself isn't in a crisis state...yet. But the Social Security system has done well enough in self-funding that the government has borrowed on it...and the tbills that Social Security holds in lieu of real money will be worth less than the paper they are printed on when the national debt finally comes to call.

The issue they should be calling to light is what will happen to Social Security if/when:

1. The real money isn't paid back from all the loans our pork-laden government has taken from it,
2. The benefit-drawing population far outgrows the benefit-paying population (as we don't put in to SS for ourselves...we are paying benefit-drawers now, and our kids will pay us, etc.) Less gozin than gozout is a common problem in the government, and it'll hit Social Security in the golden years of the boomers. That will be exacerbated by #1 (which is the real crisis, and the reason unfettered deficit spending is going to bite the US in the tush one of these days).

If we had a balanced budget/surpluses, we could ensure that there would be no Social Security shortfall when the population issue comes to bear...but funding social programs hasn't been a priority for the GOP, since it doesn't line their pockets with big biz bucks.

 
At 4:09 PM, Blogger Cookie said...

Unfettered deficit spending alone isn't necessarily the problem, in and of itself --- it's unfettered spending by not only the govt, but many, many Americans --- and unfettered spending for things which will not provide a return of any sort, but instead will keep sucking money out --- and the Bushian propping up of the economy via low interest rates --- which keeps people buying houses, etc., esp. way overpriced houses in areas with housing bubbles going on --- and people buying them who actually can't afford them except for the illusion low interest provides --- which contributes to our debt load --- but which did contribute to the somewhat soft landing of the dot.com bust.

One problem is, interest rates are going to have to go up, and many people now holding large debt with low interest are going to be f*cked. Which is one reason rising interest rates are being delayed, because the current low interest rates feed the economy by encouraging people to spend because ... they have no idea how much debt they're actually carrying.

The bigger problem is, however, that the national debt is for no good --- it isn't for rebuilding the infrastructure of the country or funding education or developing good rehab facilities for our new generation of vets or building hospitals and funding research or any number of other useful, income providing things ...

... instead, the deficit is for the most part for a war we never should have gotten into in the first place.

Put another way: I'm in the process of spending more than 1/10th of everything I have to my name on infrastructure for my home --- new septic and a tornado shelter, new fencing, energy proofing, getting big bad trees cut down, clearing out weed infested areas, stuff like that.

It's a lot of money, but it will pay off, esp. as coincidentally I'm taking out a homestead exemption on my property, meaning they can't raise my taxes much more. :=D

If I were to take that money and blow it on a new wardrobe and lots of martini lunches, it would be wasted money. Because I'm spending it in this way, however, it contributes to my overall wealth because it raises the value of my place (which I got for rockbottom prices anyway). AND it isn't everything I have to my name.

IOW, if the deficit were for things which contribute positively to the nation, it would be a different matter and it would show in good returns. Meaning it would be possible to bring about a gradual balancing of the budget from within. But that's not what's going to happen.

Even without these wingnuts at the economic wheel, however, and because of the nature of the deficit and Bushonomics (?), we DO have inflation (even though no one's admitting it), the dollar buys much less, wages are falling and there really is going to be no way to balance the budget.

Voila: crisis of the general fund.

Now add to that that privatization will cost an estimated 2 trillion ... and no wonder there's such an echoing silence out there these days.

 
At 8:57 PM, Blogger Rob said...

I just bought a condo.

You're scaring me.

:)

 
At 9:04 PM, Blogger Cookie said...

If you got a fixed rate, you have no reason to worry.

Besides, you're in Hawaii. None of this applies to Hawaii. :=D

 
At 9:13 PM, Blogger Rob said...

Yep, got a fixed rate...

Why does none of this (thankfully :) apply in Hawaii? Paradise exemption, or grass skirt clause?

 
At 9:36 PM, Blogger Cookie said...

Grass skirt exemption. :=D

Everywhere else, though, ack! Not so much here anymore because our housing bubble burst a year or so ago. Now you can't hardly give a house away --- everyone's trying to get out from under them. But a lot of places still have very inflated real estate prices and a lot of people just haven't been paying attention. The consumption society, you know.

Add to that, all those people who've gone for variable rates. Yikes.

 
At 12:47 AM, Blogger Rob said...

I'm not a finance/econ guru, so a lot of it is Greek (or Hawaiian) to me...so are you basically telling me I made a good investment? I hope so... :)

I'll go get in my grass skirt now...

 
At 9:10 AM, Blogger Cookie said...

If you got a fixed rate and bought within your means (which I suspect you did --- you strike me as a sensible person :=D ), then you did good.

Here's a rather extreme comparison: I bought my place for less than what most people are paying for a new car these days. !! I also paid cash and bought it lock stock and barrel, all five acres --- meaning interest simply doesn't apply to me and within 4-5 years, I would have spent the amount I paid for this place on rent alone. My value has also almost doubled, thanks almost entirely to sweat equity (elbow grease).

So I'm coming out way ahead and, unless a giant sinkhole opens up and sucks the entire place down, there's no way I can lose, as the value of y land alone is now worth what I paid for land + dwelling.

Compare, though, to a keep up with the Jones conspicuous comsumption couple. They think they make a lot of money --- let's say their income is $120,000 a year. But they have $20,000 i credit card debt and decide to spring for a new house AND a new car, in order to floss up their image.

They just can't live without that new Lexus, which will run them around $30,000+ --- and they find the house of their dreams in the toniest new development for $350,000. The problem is, they've missed a few payments on their gas bill or credit card or whatever, so their credit isn't the best.

But they have to have the house, even though they're living ina housing bubble area and the actual value of the house is probably more like, let's say, $175,000. So they buy the house and keep up with the payments for a month or so.

Then ... then Mrs. Conspicuous Consumption falls down their fabulous stone staircase and breaks her hand. Unfortunately, she is also simultaneously laid off (although the boss doesn't want to give her unemployment so he fires her on bogus charges). So she's uneligible for unemployment.

Coincidentally, the housing market is starting to cool down. But they still have those nice interest rates, right? Except they didn't get a fixed rate mortgage.

Then they miss one or two credit card payments too many, and that interest gets hiked to 19%. So they decide to sell the Lexus, but it lost how much of its value? the minute it was driven off the lot and anyone who could afford it wants a new one anyway.

Which is just the start of their problems because the housing bubble hasn't even broken yet where they are.

Really not that extreme an example. All of us know people like this. They're in trouble, especially if they're not paying attention (which they tend not to do).

 

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