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James Bacon

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  • CNBC Is Right: America, We Have a Serious Problem [View article]
    OK, Cullen, I've been reading your spiel that the U.S. is not like Greece, the government can print all the money it wants, so we can run up humongous deficits and never go insolvent. Here's my question. If it's that easy, if all the Fed has to do is print money, why do we bother taxing anyone? Just crank up the money machine!

    Surely you acknowledge the potential for inflation, or even hyper-inflation, and surely you acknowledge that, all other things being equal, inflation will push down the value of the dollar, push interest rates higher and discourating people both at home and abroad from buying U.S. Treasury securities.

    I guess what I'd like to hear from you is an acknowledgement that there is *any* downside to the Fed's conjuring trillions of dollars from the ether.
    Dec 1, 2010. 02:06 PM | 7 Likes Like |Link to Comment
  • Grantham: Deflation Has Won on Points [View article]
    EH said: "I don’t think you can add huge amounts of stimulus to an economy without significant malinvestment which would retard longer-term growth rates."

    That goes to the heart of the matter. The only way to lift the economy and raise living standards over the long run is through productivity and innovation. The more the government tries to "fine tune" economic performance, the more it misallocates resources, thus undermining long-term growth.

    The U.S. needs to purge its excess debt, establish a new equilibrium, then start growing again. The alternative is to pursue more Keynesian stimulus, misallocate more resources, crimp long-term growth and postpone the inevitable day of reckoning, which will be orders-of-magnitude more painful than taking our lumps now.
    Jul 20, 2010. 08:54 AM | 5 Likes Like |Link to Comment
  • Can the Boomers Retire? [View article]
    Wow, there is a lot of great commentary in this thread. I have couple of responses.

    First of all, to young readers who have totally written off Social Security... That's probably a healthy attitude, because it means you are intent upon becoming financially self sufficient and not a ward of the state. On the other hand, it may be unduly pessimistic. Even under the worst-case scenario, Social Security will survive in one form or another. If the U.S. Treasury goes into default and S.S. can pay no more than it brings in through payroll taxes.... that's still a 76% payout. (Assuming, of course, that default doesn't trigger a depression that lays off millions and, thus, reduces the number of people paying payroll taxes.) In all probability, under such a scenario, Congress would means-test S.S., meaning that S.S. pay-out formulas would become more distributionist, thus reaming those who prudently worked, saved and invested all their lives. But it's a wild exaggerration to think you will get *nothing*.

    One last point: S.S., for all of its problems, is probably the most solvent part of U.S. government finances. What you really have to watch out for his the cost of health care. If current trends continue, out-of-pocket medical expenses for retirees (what Medicare doesn't cover) are expected to increase from roughly 10% of income to nearly 20% of income within a generation.... And that's assuming that Medicare remains solvent. Which is will not. The Medicare Part A trust fund for hospital payments is scheduled to run out in 2017. Obamacare does nothing to address that problem (indeed, it siphons existing Medicare revenues into programs to subsidize health care for non-retirees), and no one in Congress is even talking about the problem.

    As a card-carrying member of the middle class, my sympathies are totally in line with those Americans who work hard, pay their taxes, avoid debt and save money with the idea of providing a comfortable retirement for themselves one day without looking to the government (i.e. the taxpayers) for help. I agree with Wowulookgood that if America's derelicts and spendthrifts try to solve the problems they created by taking away what the prudent ones labored to accumulate, there will be hell to pay... Not with guns, hopefully, but at the voting booth.
    Jan 2, 2011. 09:29 AM | 4 Likes Like |Link to Comment
  • Can the Boomers Retire? [View article]
    CPA28761, I said only that S.S. is the most actuarially sound part of the federal government. That's based on the fact that even when the trust fund is depleted, payroll taxes will continue to cover 76% of promised expenditures. Compare that to the rest of the government. When the government goes into default and can't borrow anymore, taxes will cover maybe 60% of non-S.S. spending.

    As you say, the "trust fund" is an accounting fiction. If the government goes into default before 2037 -- before the trust fund has been fully drained -- it will have no resources to make good on promised S.S. payments.

    Meanwhile, the Medicare "trust fund" is scheduled to run out of money in 2017!
    Jan 3, 2011. 08:23 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    In today's Wall Street Journal: Japan's Government Pension Investment Fund, which manages assets worth more than $1.4 trillion, is pondering the idea of investing in emerging-market economies in the hope of gaining higher returns.

    The GPIF has roughly 67.5% of its assets tied up in low-yielding domestic bonds. How low? The yield on the 10-year Japanese government bond is 1.075%. Trouble is, the fund plans to sell a record four trillion yen of assets (about $46 billion) over the next six months to free up funds for payouts to Japan's aging population. As the nation's population continues to grow older, GPIF will have to liquidate even more of its assets -- unless it can find higher returns elsewhere.

    The quest for higher yields is all well and good for the GPIF and Japan's pensioners, but it creates a problem for the central government, which is dependent upon private and institutional savings to bankroll its massive budget deficits. One of the few things keeping the Japan government afloat is the incredibly low interest rates it can extract from its population. If the nation's (and the world's) largest pension fund starts seeking higher returns elsewhere, that means less money invested in low-yielding Japanese government bonds. At some point, the Japanese government will have to accept higher yields in order to sell its debt. Even a small percentage increase on a debt as massive as Japan's -- roughly $10 trillion, equivalent to 230% of GDP -- will translate into significantly higher interest payments and bigger deficits.

    And the death spiral will tighten.
    Sep 18, 2010. 11:25 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Oops. The Yamato sank off the coast of Okinawa. Sorry.
    Sep 16, 2010. 11:08 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Kudos on a great article. My only suggestion -- your metaphor of Japan as "Titanic" would have been a bit more poetic as "Yamato" (the massive, supposedly invincible Japanese battleship sunk during the battle of Leyte Gulf).
    Sep 16, 2010. 10:46 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Stefanos, True, domestic saving has kept interest rates in Japan low... so far. But as Quinn points out, domestic saving is in free-fall. In the not-too-distant future, as an increasing number of elderly Japanese draw down their savings, the country could well enter dis-saving mode. At that point, the central government will be forced to borrow from abroad to continue funding its deficits. Then the depreciation of the Yen *will* matter.
    Sep 17, 2010. 08:31 AM | 2 Likes Like |Link to Comment
  • Will Bond Holders Be on the Hook for Bailing Out Failing European Countries? [View article]
    True enough. But U.S. taxpayer support of the global banking system is directed mainly toward keeping the U.S. portion of that banking system sound. U.S. taxpayers have yet to be asked to bail out the Greeks and Irish (at least not directly, in a way that can be easily measured).

    But that is a mere quibble. I totally agree with you that we are simply postponing the inevitable unraveling.
    Nov 28, 2010. 08:47 AM | 1 Like Like |Link to Comment
  • On America's $1 Trillion Deficit [View article]
    Look at Table 3 in the Monthly Treasury Statement -- interest payments on the national debt *are* included. I don't think you can justify the $1.7 trillion deficit projection for the year. Not that a $1.3 - $1.4 trillion deficit is bupkiss. It's awful, especially for a year in which the economy is growing. But it's pretty close to what the Obamanauts projected for FY 2010 -- $1.43 trillion -- when they compiled their FY 2011 budget in February.

    The year to watch is next year. The Obama team projected pretty strong economic growth for FY 2011, but it's now looking like economic growth -- and revenue growth -- will fall far short. As a result, the deficit could be considerably larger than the $1.145 trillion deficit projected for that year.
    Jul 15, 2010. 09:54 PM | 1 Like Like |Link to Comment
  • On America's $1 Trillion Deficit [View article]
    Are you sure that the $289 billion discrepancy between the reported deficit and the increase in the national debt can be explained by the exclusion of interest payments? Even the Obama administration isn't that crooked. (If it is, we're in even bigger trouble than we thought. We can believe no published numbers at all.)

    I would have thought the discrepancy would reflect "off budget" spending, primarily the wars in Afghanistan and Iraq and/or off-budget financing for such gems as Fannie Mae and Freddie Mac subsidies.

    But I'll readily concede that I'm still learning to read federal budget documents.
    Jul 15, 2010. 11:14 AM | 1 Like Like |Link to Comment
  • Encouraging Data on Retiree Dis-saving Rates [View article]
    Dancing Diva, far from bursting my bubble, you raise a good point that gives even more weight to the question I raised at the end of the column. In the final paragraph, I wondered if the pattern demonstrated by members of the Silent Generation will hold true among the Boomers.

    Given the fact that Boomers are less likely to have fixed pensions, as you point out, they will be more dependent upon income drawn from their 401(k)s. Therefore, it is totally valid to think that they will draw more aggressively from their personal retirement accounts.

    I tend to be pretty pessimistic about the retirement future of Boomers and fiscal condition of the United States. On the other hand, I'm always on the lookout for data that will contradict my viewpoint -- I try to practice reality-based journalism. Perhaps I went overboard in trying to self-correct. Thanks to your comment, I'll revert to my gloomy, pessimistic tone of analysis!
    Jan 13, 2011. 08:30 AM | Likes Like |Link to Comment
  • Rose-Colored Glasses Can't Help State / Muni Bond Scenarios [View article]
    Shawn G, You are right to say that, technically speaking, the U.S. will never default on its debt because it can always print all the money it needs. But, alas, you are clinging to a false comfort. At some point, inflating the money supply will become a de facto default because it will lead to inflation that erodes the erosion of value of bond holdings. As investors conclude that their investments in U.S. Treasury securities are losing value, they will refuse to buy any new debt except at punishingly high interest rates. Meanwhile, the value of the dollar will plummet and higher interest rates will punish the economy.

    I guess you could say that Zimbabwe never went into default -- all it had to do is print more money. But look at what a wreck Zimbabwe is!
    Jan 2, 2011. 08:58 AM | Likes Like |Link to Comment
  • Rose-Colored Glasses Can't Help State / Muni Bond Scenarios [View article]
    PaulTD, I did not mean to insinuate that the Feds would be on the hook for the full $2.8 trillion in municipal debt. Rather, the Feds will be on the hook for whatever it takes to keep states and municipalities from defaulting on tht debt. That number is unknowable. But if the "Stimulus" bill is any indication, the number could well run into $100 billion+ a year... pretty much forever. That's money that Uncle Sam can ill afford to add to its own deficits.
    Dec 31, 2010. 08:52 AM | Likes Like |Link to Comment
  • The Skinny on Fiscal Stimulus Programs [View article]
    Good point. To the cost of collecting the taxes add the cost of administering whatever program the stimulus money is being funneled through.
    Dec 18, 2010. 08:15 AM | Likes Like |Link to Comment