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The IMF's report that the U.S. needs to grow at 14% in perpetuity to close its fiscal gap leads...

The IMF's report that the U.S. needs to grow at 14% in perpetuity to close its fiscal gap leads Laurence Kotlikoff to conclude that "our country is broke and can no longer afford no-pain, all-gain" Ponzi solutions. Hard-core Keynesians who say any short-term stimulus won’t affect our ability to handle long-term deficits are "wrong as a simple matter of arithmetic." (also)
Comments (62)
  • Either Americans are going to consume less and reduce their standard of living substantially or a falling dollar is going to do it for them.
    11 Aug 2010, 06:17 PM Reply Like
  • The falling dollar will do it for them ..until they realize at the last stage, that the currency was a lie.


    We've made a deal with the devil, the father of lies, printing money from nothing.


    the road to hell is always paved with good intentions.


    think lower standard of living.
    11 Aug 2010, 06:27 PM Reply Like
  • Pshaw.


    As all the really smart economists all know, arithmetic is a lagging indicator.
    11 Aug 2010, 06:19 PM Reply Like
  • Love it... so true


    The reality is that the consumer IS cutting back, but the government isn't, give this memo to EVERY administration of both parties.
    11 Aug 2010, 06:24 PM Reply Like
  • Since when has the IMF ever been right?
    11 Aug 2010, 06:26 PM Reply Like
  • Actually, what I thought were the MOST significant "numbers" in this piece was that the U.S. would have to PERMANENTLY and IMMEDIATELY double all taxes - to simply be able to (one day) reach a balanced budget again.


    Naturally, since all the "little people" have already been squeezed-dry, what this means is that the ONLY hope for the U.S. to ward-off bankruptcy is MASSIVE tax increases on the ultra-rich - to take back some of the $10 - $15 TRILLION which they have plundered from the U.S. economy.
    11 Aug 2010, 06:32 PM Reply Like
  • Do you ever stop to think that the "super-rich" can hire accountants that are smarter than the taxman?
    11 Aug 2010, 06:46 PM Reply Like
  • TruthHurts,


    Having studied our tax systems (and having two years of tax-law and four years of economics under my belt), I can state unequivocally that EVERY income taxation system MUST grossly under-tax the ultra-rich (as a matter of simple arithmetic).


    I explain this concept in this commentary.


    "Income Taxation is a Failed System"
    11 Aug 2010, 06:50 PM Reply Like
  • This is an insane remark. America is free enterprise. Of the so-called ultra-rich, 80% plus are self made from nothing, and if you take that back 200 years it is 100% self made.


    The only plundering that has been going on, and it is a lot more than 10 trillion, is the outright theft from our Treasury by the congressional and other governmental distributionsists! The bottom line to them, It is NOT YOUR MONEY. You did not earn it.


    And please, don't talk to me about plunder, when the government employee running the City of Bell, in CA, plunders my tax money to pay himself 800k per year and a $10 million pension. I repeat, $10 MILLION.


    Multiply this outrage all across America, and it pales by comparison to the few corporate wrongdoers who raided their OWN larder, not yours, and most got punished.


    Go ahead, tax those who invest and have the capital by 100%. Good luck keeping your job.


    Time to get real folks. Soon it will be too late.
    And while I'm at it, let me remind everyone that the following was created by hard working individuals through sheer effort and brains, starting with nothing...count the jobs...count the tax revenues that became handouts!:
    Time for America to wake up.
    QUIT spending on useless stuff.
    11 Aug 2010, 06:55 PM Reply Like
  • Jeff, identify the "little people" you're referring to? The bottom half pay no taxes - many even get a "refund" of taxes they never in fact paid. Or are you referring to height/weight? Don't know Blankfein's height but he looks small, maybe he's one of the squeezed folks you're concerned about.


    P.s. Nice not to see a shameless plug of in one of your posts for a change.
    11 Aug 2010, 06:58 PM Reply Like
  • "ime to get real folks. Soon it will be too late."


    It's too late...
    11 Aug 2010, 07:01 PM Reply Like
  • You are so right. The U.S. is not Eastern Europe where so many left wing second or third generation socialists come from.
    11 Aug 2010, 10:21 PM Reply Like
  • The unions... They hold the key. If they agree to give back at least 50% of their benefits and pension, then we as a country have a chance. I hate to say it, but they are to immature and spoiled rotten to even contemplate this. To be fair to the unions, it doesn't help when the local union leaders have been blowing smoke up their asses for years. Then you get the progressive of all progressives in power{Our Socialist Commander in Chief},and more give outs to the unions{26.1 billion approved today},isn't this all so great Andy Stern?
    The ensuing depression will cleanse all this. The public/civil service worker will be destroyed. Or local/county and state governments will start to FAIL!
    Grow up America, Our elected officials and Obama in general think you are to STUPID to handle the truth. Speak up, all progressives must be voted out. God bless America, what's left of this great lady!
    11 Aug 2010, 06:36 PM Reply Like
  • If we can have the banks give back 50%, including bonuses, salaries, and clawbacks of money made on CDS debacle, and put some in prison, then maybe.


    The free market has been anything but, so complaining about unions doesn't make much sense when CONgress, the Judiciary, the rest of Washington and Wall Street are in league to defraud the individual and the middle class using similar tactics.
    11 Aug 2010, 06:43 PM Reply Like
  • I know several companies that have relocated many jobs outside the US and have better workers than before and are paying them less than 1% of what the US worker cost them. So, unless the workers are willing to accept a 99% pay cut, and the company is willing to gamble the workers are going to be more motivated than they were before, those jobs aren't coming back. Union, and proud!
    11 Aug 2010, 06:50 PM Reply Like
  • Jerry there is such massive denial out there in union land.


    Here is a fun story.
    I live here on the North Shore of Long Island NY. Nice neighborhood. The houses are 40 years old and the plots of land are 1/2 acre. Property taxes are about $14K / year in my neighborhood. I have been here for a decade. The average house in my neighborhood goes anywhere from $550K to $700K as of today.
    Over the past year and a half we have had about 6 families move in.


    You know who has been moving in and buying the houses? The only people who have been completely unaffected by the entire recession.
    Every single family, every single one, has either been a cop's family, or some other union related entitlement, welfare job. They are the only ones who can afford to purchase homes in this area at that price. And why is that? Because they do not have to save one cent for their retirement or health insurance. They are free to spend the majority they earn for they are COMPLETELY backstopped by a taxpayer who up to this point seems indifferent about the whole situation.


    Not only do they purchase the house, oh no, LOL, they then immediately get to work either renovating the house, spending money like its going out of style, putting in ground pools in with elaborate landscaping, adding sport courts, or adding to their car collection. I am not kidding, I have never seen so many welfare entitlement people with so many 1960's Pontiac muscle cars that they are rebuilding.


    Oh and did I mention many of them are in their early 50's receiving their 100% safe and secure pensions and health benefits while so many professionals I know are really having a tough time getting by. You know, the guys who built and ran businesses for years and are now being forced to support these welfare receipients.


    Folks we are truly at a crossroads in this country.
    11 Aug 2010, 06:53 PM Reply Like
  • I used to work under a guy who joined the military at 17 and got out after 20 years. He then went to work for a school district for 10 years to qualify for their pension, then he hired on at Sears, and was going to work until he qualified for their pension, and was going to retire and just work part time to keep himself out of trouble. And he planned this all out before he joined the military; he wanted to retire early and draw three different pensions from three unique bases and still be able to work part time if he wanted to. I have a really hard time begrudging people like him, although I know he isn't the norm.
    11 Aug 2010, 07:20 PM Reply Like
  • Umm..maybe it's because they pull people out of burning buildings and save people's lives. Maybe that's why they deserve those early pensions? Guess who has the most generous public pensions in America? Soldiers. They even have a government run health care system (which by the way, they wouldn't want to give up to go to a private health care system).


    And seriously, a reality check here. When was the last time you heard someone say, "I want to strike it rich and have an easy life, I'm going to become a policeman/soldier/fireman teacher"?
    11 Aug 2010, 07:22 PM Reply Like
  • Truth-hurts:
    You what it is? I have to admit. I guess I am just jealous. I thought that if you were self made and wanted to be respected and feel as if you truly accomplished something, that you were supposed to follow the path I and many like me did.
    I think I was wrong, in hindsight of course.


    The guy you spoke of wised up at a very early age and saw the future for what it was: a massive welfare, entitlement system where unions brainwashed their members into believing that the taxpayer would always take care of them even if every taxpayer was forced to pay 99.9% of their income for their absurd benefits. To this day the unions have been right, for I have really yet to see any significant backlash on this issue.
    The other day i read somewhere that only 65% or so of all Americans actually work in any way shape or form. I am willing to be atleast 35% of the remaining are entitlement workers leaving just 30% of those Americans remaining to essentially support them.
    Pretty scary.
    11 Aug 2010, 07:28 PM Reply Like
  • <<When was the last time you heard someone say, "I want to strike it rich and have an easy life, I'm going to become a policeman/soldier/fireman teacher"? >>


    I hear it all the time. Here on Long Island NY, police officers earn $100K after a mere 4 years on the job, full health benefits (they do not pay one cent, not one) massive pensions fully backstopped by the taxpayers, and special deals from everything such as cell phones, cable, etc. (These deals are a secret and I know about them for I have some "friends" who have told me so).
    Of course all that doesnt include the massive overtime they put in for and double time on holidays waving traffic around parades.
    And the ultimate of course are those final few years where they put in as much overtime as possible for their pensions are calculated on those numbers.


    All one, disgusting welfare system. I for one look forward to its collapse and all the tough guy cry babies yelling "Why me, Why me? Why isnt anyone taking care of me? No one told me I had to think for myself"
    11 Aug 2010, 07:36 PM Reply Like
  • >>And seriously, a reality check here. When was the last time you heard someone say, "I want to strike it rich and have an easy life, I'm going to become a policeman/soldier/fireman teacher"? <<


    I hear quite a few. They say it's like winning a lottery.
    11 Aug 2010, 07:40 PM Reply Like
  • Yes they do. They go into it knowing the game. There's no feigning ignorance here.

    11 Aug 2010, 07:48 PM Reply Like
  • . (These deals are a secret and I know about them for I have some "friends" who have told me so).
    did you footnote that with references......
    11 Aug 2010, 08:03 PM Reply Like
  • Actually, only one of the jobs he had was a union job, so saying he saw the future as a massive entitlement scheme isn't correct. What he did was plan ahead. I know of lots of people that quit the military after 16 or 18 years instead of sticking it out. I know lots of people that worked for one company for 12 years, and then a second company for 8 years, so they only got one pension. I work in an industry where some companies have a pension plan and others don't but the ones that don't pay about 5% more. I don't begrudge the people that work for the companies that don't have a pension plan, why do they begrudge me for working for one that does? The non-union companies in my industry tend for pay more than the union companies, but the union companies have better benefits, to each his own. But planning for the worst, hoping for the best, and expecting surprises tends to work out in the end.
    11 Aug 2010, 08:07 PM Reply Like
  • Forty years ago at my first summer job on Wall St I worked for a guy who quit and became a cop "so he could make some real money," and he knew for sure 'cause his brother was already a cop. Some things haven't changed, but now they have too.
    11 Aug 2010, 08:25 PM Reply Like
  • In terms of wanting an "easy" life, I went to college with many folks that chose teaching because they knew they only worked 8 months of the year, had great health care and full pension after 25 or 30 years.


    Mostly they were decent folks, nice, not too much drive or ambition. Thats not to say I didn't know some that truly wanted to teach children - but they were maybe 25 or 33%.


    And whats sad is that most of the people that become firefighters or policemen do it because the want to do it..... which means there is no reason for these ridiculous pensions. I have friends that are cops/FBI and they are sheepish to embarrassed at the current situation. They didn't become policemen to contribute to the BK of their county, town, city etc. They themselves to a man know that this is out of whack.....
    11 Aug 2010, 08:34 PM Reply Like
  • I hear you.


    The problem is there is parasitism on both ends.


    If the Ivy League connected bankers can get millions per year then why shouldn't the cop and firefighter who risk their lives get $100K a year and a nice pension?


    Problem is there are so many, many of us struggling at the bottom or lower middle class. We work hard, stick our necks out, pay our bills and make median wage or a little above and are bled to death by the fees, taxes, and related costs of life that are inflated by those making two, three, four, or 20 time more.


    As a society and culture we want ten times more than our Parents or Grandparents ever had. McMansions, vacation homes, a car for every driver, a new car every 3 years, Suzie and Johnny at the best college with all the accoutraments, etc., etc.


    A lot of people hardly cook anymore or open a can, and throw things away at an incredible pace, so much waste.


    "Live simply so others can simply live" is an idea lost on most of the population.


    I agree, our course is unsustainable, a crossroads for certain.
    12 Aug 2010, 04:14 AM Reply Like
  • All true. The American Dream needs a serious revision, since "you can have it all now", and, as you say, 10X what your parents had, is not only unrealistic but, as we have seen, highly destructive. The result is an X Generation with less, not more, than the B.Boomers.


    For reasons that sociologists can ponder, getting and spending became the American palliative for human mortality. "You can't take it with you" turned into "so leverage up and shop 'til you drop."


    It's frankly embarrassing to see Chinese families with less than a tenth of average U.S. wealth saving for their children's future, while Americans -- in the good times -- transitioned in a negative savings rate amidst prosperity for the first time in American history.


    It was Hemingway that wrote "living well is the best revenge." It's a shallow, morally bankrupt sentiment. We should be custodians of the earth and of our children's, and hence our country's future.
    Instead we have gone from "the greatest generation" [sacrifice] to the most infantile and self-indulgent one in a very short time.


    How did it happen? I have no idea, but, if forced to guess, I would point the finger at communications technology. The rise of television and other media, with decades of highly professional marketers pushing the "you can have it all now" message relentlessly has been a "success." Consumption became the new religion. A false g-d, indeed.
    12 Aug 2010, 01:32 PM Reply Like
  • 100 % right and very well said. However Hemingway's quote "living well is the best revenge." could and should certainly mean being custodians of the earth and of our childrens and countrys future. This sick obsession with more toys has absolutely nothing to do with living well. It is childish. And I think the revenge can be against those who might tell you that you need to make lots of money. (to live well?)


    I live on an organic farm and am semi retired but spend probably less than a $24,000. per year. I work 7 hours a day 5 days a week on the farm, go on vacations twice a year. Eat healthy, good natural food and want for nothing. I am living as well as almost any human can and spend my days figuring out to make more money while being an excellent custodian of the earth. However I moved out of the US because of the disgusting consumerism and politics. Living well has nothing to do with spending large amounts of money. The belief that spending large amounts of money is part and parcel of living well is a big part of the problems we face today.


    The USA party will end and the hangover is going to be painful
    12 Aug 2010, 06:31 PM Reply Like
  • I wonder if Turbo Timmy is going to pay his taxes this year? I wonder if our congressmen are going to pay their share of social security taxes?
    11 Aug 2010, 06:47 PM Reply Like
  • The fact is that we won't learn our lesson till we are sick. More than 99% of this country doesn't understand the intricacies of a deficit, they are only concerned with their day to day life. Hence, the people don't know what the right thing to do is. "When the people lead, the leaders shall follow." Washington will try to do everything that makes it looks good in front of the public, playing Robin hood if it has to. You can either make the easy choice or the right choice, we know which one Washington has chosen and will continue to chose. I have NO doubt that we will get more chips out of the box and devalue the dollar. The end result will be stagflation. Europe will get the deflation side of the story because unlike us, they do care about reigning in their deficits, albeit because of the bond vigilantes.
    11 Aug 2010, 06:54 PM Reply Like
  • "More than 99% of this country doesn't understand the intricacies of a deficit,"


    To say nothing of our negative balance of trade.
    11 Aug 2010, 08:15 PM Reply Like
  • The are no REAL reasons we must accept a lower standard of living. It's all nominal.


    Are we in a war? Are we going through famine? Do we have some epidemic disease spreading throughout the country? Are we too stupid to produce the goods we need? Do we have shortage of resources to produce the goods we need?


    No, no, no, no and again NO.


    The only reason we are in this recession/depression is fear and uncertainty. And the only reason for that is that no one is buying anything.


    The answer is very simple. Just print money and spend it. Yes, I know that sounds terrible to all of you trying to make a morality play out of economics. But as I said before, there are no REAL reasons for us to accept a lower standard of living. Nothing would happen if the government spent more money. The rates government can borrow are nominally 2%. In real terms, they are about 0% or even negative. This means its free money. The people in this economy are willingly giving their money to the government to hold for nothing. These are just the FACTS.


    LOOK AT THE YIELD. Your beloved market is telling you that there is absolutely no chance of government default. Every day the yield drops. And yet, you want to believe what you want to believe and that is that we are going bankrupt. The yield, the CDS spreads and the market be damned.


    Consider this. It's 2008. You think the government is going to default and you short Treasuries and the dollar. You would be broke today.
    11 Aug 2010, 07:08 PM Reply Like
  • Its all about timing. Those treasuries you talk about might have been good at the tail end of the 2008 slide and even now as the market slides, but once the fundamentalist indoctrination wears off in the bond market, you can expect our government to accelerate its Xerox machine until we can dilute the debt down to a more manageable level.


    Stay in bonds if you must. But please understand what they are, a trashier version of the greenback. We have maybe 2 more years before we hit the Great Acceleration Of Money.
    11 Aug 2010, 07:34 PM Reply Like
  • "Are we in a war?" YES, MORE THAN ONE "Are we going through famine?" MANY PEOPLE ARE HUNGRY AND EVEN THOUGH WE ARE NOT IN A FAMINE FOOD SHORTAGES ARE A REAL GLOBAL CONCERN. "Do we have some epidemic disease spreading throughout the country?" YES, TAKE YOUR PICK "Are we too stupid to produce the goods we need? " IF BY WE YOU MEAN AMERICANS, THEN IT IS OBVIOUS. WE MAKE VERY LITTLE AND I BELIEVE IT IS STUPID THAT WE DO NOT MAKE THE THINGS WE NEED. "Do we have shortage of resources to produce the goods we need?" YES THE CHINESE ARE STOCKPILING THEM.


    My friend you live in a dream world. Where can I buy a ticket to your world. Even though my world is fine yours sounds as good as an afternoon nap after a gourmet meal and sex. Bless you!
    11 Aug 2010, 08:34 PM Reply Like
  • So, how come Zimbabwe is not the world's most prosperous country?
    11 Aug 2010, 08:44 PM Reply Like
  • "So, how come Zimbabwe is not the world's most prosperous country?"
    I have been wishing someone would ask me this. The reason is simple. They have REAL economic problems. Meaning if I was to print a ton of money and to hand it out to people in Zimbabwe. They would want to buy stuff with it, but there is no productive capacity in the country to build or produce anything. So, what would happen is you would boost demand by printing all the money, but the supply would remain depressed (due to real reasons, uneducated workforce, too much government harassment, etc, etc). So this leads to demand >>> supply. And THAT'S HOW YOU GET INFLATION.


    We don't have this problem in America. In fact, we have the opposite. Supply >>> Demand. AND THAT"S HOW WE GET DEFLATION.
    11 Aug 2010, 09:04 PM Reply Like
  • @cbc,


    Let me go over these again. I guess you need clarification.


    Are we in a war that actually disturbs our economic activity? No.


    Do we have famine? No. We again just have people who don't have enough money to buy the food, but it's not like we can't produce enough food to feed the people. Again something that can be solved by giving people the money since we can borrow at 0% real rates.


    Do we have some epidemic disease spreading? Again, I mean one that would disturb economic activity. Something that prematurely kills a third of the population as an example. No, we do not.


    Are we too stupid to produce the goods we need? I agree with you that, mostly pushed by a coalition of all Republicans and some Democrats we have allowed many of our high skilled jobs to be shipped overseas. But still, even after that, we do not have an inability to produce enough consumer goods. There are literally factories that are shuttered right now. Our producitive capacity is much, much, MUCH greater than our demand.


    "Do we have shortage of resources to produce the goods we need?" Umm, I think a simple "No, we don't have any shortages" is enough.
    11 Aug 2010, 09:10 PM Reply Like
  • Our decline has been going on for at least forty years. We are now just starting to notice it. It took two people working full time to maintain the family in the 80's 90's and on, that the husband could do in the 50's and 60's. Today it takes two and credit. Everyone should pay their share of taxes - rich and poor. The poor pay nothing and the rich just find a way to avoid it. That leaves who?
    11 Aug 2010, 07:18 PM Reply Like
  • Laurence Kotlikoff THANK YOU
    11 Aug 2010, 07:25 PM Reply Like
  • Not even China can grow at a 14% rate into perpetuity. Come to think of it they haven't reached quite that high in years. Whether 14% is anywhere near accurate I'm confident we need see our economy grow far faster than we've seen in decades. Its beyond tragic that there's some question that we might even see a double dip after having flushed as much as we have already. Perhaps the plan from the start was to make us all government employees. Clearly, those are the highest paying jobs in the country, and more stimulus primers keep them from the lay offs that affect the rest of us.
    11 Aug 2010, 07:41 PM Reply Like
  • @Spaede: "This is an insane remark. America is free enterprise. Of the so-called ultra-rich, 80% plus are self made from nothing"


    Not true.


    On the Forbes 400 list, 60% inherited at least $1 million or a small business. One billionaire listed as "self-made" started with "only" $500 million.
    11 Aug 2010, 07:53 PM Reply Like
  • The news cycle just now catching up to the data we have been seeing over the last few months. Wait until you start hearing next month where the smart money is investing. July was about building their longer term short positions into the election.
    11 Aug 2010, 08:15 PM Reply Like
  • There will be a lot of QE in America's future. America doesn't have the political will to speak honestly in regards to the benefits/services promised to Americans, so rightsizing the burgeoning liabilities won't happen. Our cowardly leaders will simply diminish them via deflation.


    Those most in need (as opposed to most wanting) will suffer most.
    11 Aug 2010, 08:45 PM Reply Like
  • What really gets me down about our current financial situation is that I still don't hear a single "leader" standing up and telling us the truth.


    In order to balance our budget we will have to both raise taxes and cut spending (drastically). That means that we'll move back to the levels under Clinton or something close. And it also means that not a single penny of that revenue can go towards spending. And in regards to spending, it will impact everyone, it will be in your backyard or congressional district and no matter how much you tax anyone we still have to have the drastic spending cuts.


    Social security comes down to making choices about the retirement ages (raising it), the level up to which we levy the SS tax, if/how much means testing to do, and how to adjust future benefit calculations. And it will mean less "benefits" to those receiving SS. No one wants to have 80 year old women be homeless.... if we do the fix now there won't be 80 year old women homeless. There might be fewer 64 year olds taking their third vacation or playing golf once a week instead of twice.


    The defense spending has to be cut. Some of our bases in places like Germany and Japan will be closed. Some weapons programs will be cancelled or scaled back. Intelligence services have grown unchecked since 9/11 and they need to be consolidated and cut back.


    Health care spending has to be changed downwards. Its emotional and a tough conversation but we have to start making the tough choices. It means not treating every affliction for the elderly, making decisions about when to allow people to die naturally. Deciding what behavior we will spend money on and what behavior you'll have to live with the consequences. We need to loosen regulations in areas where it can drive down costs. We need to allow individuals to make decisions and take on responsibilities. There is no magical solution and its a very tough subject matter but it has to be dealt with - again the sooner the better.


    Finally, we have to simplify the tax code and fix the imbalance between government and private worker compensation. That means getting rid of deductions in general - keep the tax code progressive - and get the government out of housing and education as much as possible (in terms of paying for it - state grants to universities are fine, but the whole loan situation is the main driver for higher education costs). Government workers should be converted to 401Ks, they need to contribute 33-50% of their health care costs, and a majority of positions need to have their salaries adjusted downwards. I know thats not pleasant news for those employed by the government - I truly hope that some of the talented people will leave and go off and start businesses - but I suspect that the vast majority will stay - why? Because they aren't all that talented nor do they have much ambition - ie they want a sheltered life.


    I think I'm going to have to limit myself to only reading the news about twice a week...... the daily news may be leading me to senility....
    11 Aug 2010, 08:49 PM Reply Like
  • The following clip from USA Today gives an idea where some savings may be found...........


    >>>Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available.


    The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.


    Public employee unions say the compensation gap reflects the increasingly high level of skill and education required for most federal jobs.........<<<
    11 Aug 2010, 08:59 PM Reply Like
  • Somewhere in the ether of the internet is an article providing and apples to apples comparison of federal wages to private sector. It concludes federal wages are 10% higher. This does not include benefits so the difference is higher. Action should be taken.
    11 Aug 2010, 11:41 PM Reply Like
  • obviously more stimulus is needed, but to enter into the spirit of all the 'seeking alpha' supply-siders here, i'm willing to seriously take an ax to the budget. all we got to do is cut the military budget in half. Voila! 300 billion plus.
    11 Aug 2010, 10:30 PM Reply Like
  • What many seem to fail to realize is that when the other leading-currency nations --Britain, China, Europe (euro)-- all print significant amounts of currency, similarly, there's really only the relative differences between to countries to differentiate them. It's not as if the U.S. is printing away and nobody else is. They've all been doing it.


    What this leads to is not some radical change in everybody's standard of living, relative to each other; rather, it's significant inflation for prices, as measured in all those currencies, as they proliferate, while various goods and services remain in more normal supply.


    This is why the deflation argument is entirely specious and will be revealed as so, as soon as people and businesses stop being guided by fear and apprehension and resume normal commerce. Then, it will become readily apparent that there's a lot more currency out there, but not a similar expansion of goods. Inflation will invariably result.
    11 Aug 2010, 11:13 PM Reply Like
  • <[A]s soon as people and businesses stop being guided by fear and apprehension and resume normal commerce.>


    You mean as soon as 9.5 million Americans find jobs? Deflation is not a figment of anyone's overactive and fearful imagination. It is the price of goods, services and assets adjusting from debt-fueled overvaluation.


    Falling prices cut into revenue at firms that build things and provide services, so they cut costs with layoffs and pay cuts. When people bring home less money, they invariably buy less. Demand for products falls further, forcing even deeper price cuts to entice consumers. At the same time, outstanding debts rise in terms of incomes, gouging even more from each paycheck.


    It doesn't end until all the speculative debt is squeezed out of asset prices -- assets can't fall in price to an aggregate price less than circulating currency.


    Normal commerce will resume when incomes and asset prices have come into balance, and private and public balance sheets are rebuilt. I don't think that is purely a psychological phenomenon.
    11 Aug 2010, 11:43 PM Reply Like
  • green:


    That was swell discourse, but corporate revenues have been rising, not falling. And, I defy you to construct a list of goods or services that are actually falling in price, housing notwithstanding (in fact a report issued this very day shows that even houses rose in price in Q2), all grand deflationary rhetoric notwithstanding.


    It's become some kind of accepted given, rather like global warming, that if somebody merely mentions the word, then, it must be happening. Well, the truth is that aside from some arcane measures of M1, M2, M3, we're not seeing any of the typically anticipated consequences of deflation.


    Perhaps, people should read up on price phenomena during the Great Depression to get a handle on what true deflation really looks like, not today's popularized, but empty, notion of the word.


    What we're seeing is a negative effect on Ameican's standard of living. This is anything but deflationary; it's the very fact that their incomes and dollars buy less, not more.
    11 Aug 2010, 11:56 PM Reply Like
  • I think you will find that corporate revenues are not rising due to inflation; higher prices are not inflation. These are higher Real prices, because large, multinationally-based U.S.corporations both source and sell internationally, and have been very effective at reducing expenses, controlling costs, managing inventory and taking advantage of cheap money. And crushing weaker competitors, naturally.


    U.S. real estate is the largest U.S. asset class. It makes little sense to say that our present 1.1% CPI is inflationary "notwithstanding" real estate, which is also the most widely-held asset class.


    A weaker dollar is also not inflation [more money chasing fewer goods and services]. It is higher Real prices of imported goods [like oil, over 1/2 of U.S. consumption] after the currency conversion.


    Is this a distinction without a difference. Hardly. If there were price inflation, there would also be wage inflation. Noticed any? All that's happening is that indebted Americans, both citizens and government, are getting poorer relative to countries that consume less and save more. Again, not inflation, but poorer in real terms.


    If we had monetary inflation, the Fed would be raising rates, strengthening the dollar and making Americans richer in global purchasing parity terms. And throwing a party.


    That is clearly not happening. Bernanke can stuff the banks with all the QE money he likes; no one wants to borrow it. Ask the Japanese Central Bank how that works.
    12 Aug 2010, 12:48 AM Reply Like
  • green:


    Deflation, as some theoretical concept, is meaningless without accompanying price deterioration. And we just don't have it.


    Forget all the cost-containment talk, too, because that affects the top line, revenues, not at all. Revenues can only advance if prices increase and/or volumes of goods sold expand so fast that they compensate for falling prices. Certainly, nobody can make a credible case for the latter, and if they could it would be an indicator that the economy was booming.


    We've been through a very weak period and seen no appreciable effect on pricing. Just wait until things get better. Americans, more than most, suffer from a very myopic view of things, as relates to time horizons. If they don't see inflation this afternoon, they assume it can't or won't happen. They're going to be surprised within a year or two, at the most.
    12 Aug 2010, 08:46 AM Reply Like
  • Perhaps surprisingly, I agree with your conclusion. Deflation will end in a few years. It is not an endless spiral, as is commonly thought. It stops when asset prices reach a level that no longer reflects the credit expansion that led to a credit crisis.


    We have already gone through the first phase of the deflationary cycle: a halt in credit expansion. The initial expansion of credit for the purchase of real estate starved other areas of capital, badly distorting the U.S. economy away from real consumer needs and preferences, like skilled jobs in neglected areas like the rebuilding of essential U.S. infrastructure.


    Secondly, the halt in credit expansion turned into a credit contraction, which we have also experienced, in which the object of the credit - mostly real estate and finance -- fell in value. Since most U.S. jobs created between 2003-2007 were in real estate and finance, there was employment contraction, which led to less income and consumption across the U.S. economic spectrum.


    Quite arguably the U.S. should not have propped up Wall Street and real estate lending -- the beneficiaries of this unhealthy overexpansion of credit -- as a "cure" for the recession, but that is water over the dam. Over time, the disappearance of easy credit will return the price of the factors of production to a balance that reflects actual consumer needs and preferences. In that sense, deflation is nothing more than a necessary redress in the imbalance caused by the highly artificial expansion in real estate loans produced by the securitization of mortgages without regard to repayment potential.


    So deflation is good for you, eventually. You may be right that we have no deflation in our future; I'm no expert on market timing. But you're wrong to think that we are not already passing through a deflationary cycle.
    12 Aug 2010, 09:52 PM Reply Like
  • green:


    The current "deflationary cycle" rather reminds me of promises that Republicans make to reverse Democrat policies, i.e., they're never reversed, the Republicans merely hold things at neutral for a while, if that.


    In the same respect, during the worst moments of this "deflationary cycle," other than housing, we've seen no real decrease in prices or cost of living. Now --while we can debate exact timing-- all we have to look forward to is the resumption of the endless inflation associated with fiat currencies, whose expansion at a faster rate than underlying goods and services is unvarying in its occurrence, as shown throughout a long history. The net result will be that the nominal price of everything will increase, and, as the economy recovers, the pace of this price increase will accelerate.
    12 Aug 2010, 10:01 PM Reply Like
  • Regarding the comment, the country needs to experience pain and stop avoiding it. The 10% unemployed and 15% underemployed have been feeling plenty of pain. The middle class that has seen little real income growth over the last decade has experienced pain. The families not advantaged enough to avoid military service have felt plenty of pain in Iraq and Afghanistan. Yes, difficult choices need to be made such as major reductions in defense spending (shut down the empire), reductions in federal government salaries (including congress), rationalization of retirement plans and yes increases in taxes. If we are going have pain, let's make sure it is shared.
    11 Aug 2010, 11:36 PM Reply Like
  • the beauty of having the world's reserve currency is that heads i win, tails you lose. exporting asia must continue to recycle their dollars into us treasuries, the 5 year yielding 1.5%. basically free money. if inflation does take hold, these countries are stuck with negative yield, easily met by a tax on growing incomes. threaten to dump treasuries for yen? good luck with the move to a currency based on negative growth . euro? another deflating zone.
    12 Aug 2010, 01:09 AM Reply Like
  • Having by far the world's largest military establishment and not having any military competitors within driving distance [unlike most countries in Eurasia] has been good to the dollar, that's for sure. A militarily-safe haven attracts a lot of capital in a dangerous world.


    So you're dead right. The dollar is largely propped up by the lack of safe alternatives. Proving that economics is only part of the global value equation.
    12 Aug 2010, 01:22 AM Reply Like
  • What if we pay some of our creditors and not others? What if we extend our territorial waters to 200 miles and collect from all fishing and drilling? What if we charge for our military, rescue and protection operations? How about making Iraq and Afghanistan pay for the war with their mineral and oil wealth? How about selected negotiated protectionism? How about withholding food and medicine, unless we are paid market value? How about demanding compensation for ripped off patent and other intellectual property? There are a lot of steps a nuclear power can take when their backs are against the wall. There are no fixed rules in this world. If your choice was losing your bank accounts, home, and opportunities and continuing to be a victim and a patsy under self imposed constraints; or shaking things up, at some point a critical mass of opinion will form. Such cirumstances gave rise to Hitler, Mussolini, Napolean, Atilla, and Ghengis Khan and perhaps somewhat inspired the wording in our own Declaration of Indepenence. The problem with putting too much pressure on an existing paradigm is that it might break. Then you'll be dealing with a different animal. Not at all what you were predicting.
    12 Aug 2010, 08:51 AM Reply Like
  • the world already pays us for our role as world policeman, they do this by supporting the dollar as world reserve currency. buying our treasuries. we need (and the world needs) for the us to recycle their no-interest loans into stimulating our economy, putting people to work.
    12 Aug 2010, 03:22 PM Reply Like
  • I'd like to buy the world a coke and have it work in a peaceful reciprocal manner; but I'm just saying if we get our backs up against the wall all bets are off because the game will change. that's why these ridiculous 14% perpetual growth rate or die projections are meaningless.
    12 Aug 2010, 03:50 PM Reply Like
  • supply-siders, like the good doctor writing this article, stand in awe and fear before our country's debt. 202trillion dollars!!! but the true fear should be among foreign holders of these dollar claims.
    this frightful debt will be deeply discounted to negative future yields unless the US starts growing. We and the world economy need for our country to use the loans of the world to put america back to work now
    12 Aug 2010, 03:38 PM Reply Like
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