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pushing on a string: mortgage rates increase

by Jerome a Paris Mon Feb 9th, 2009 at 10:00:14 AM EST


US plan to curb mortgage rates falters

The US Federal Reserve's efforts to drive mortgage rates lower by purchasing home loans have faltered and rates have risen over the past month.

The rise in rates is a disappointment to government officials, who had hoped that a steep fall in house prices and low financing costs would lure new buyers into the nation's depressed housing market.

Since January 13 the rate on standard long-term mortgages charged by lenders to prospective home owners has jumped from 5.04 per cent to reach 5.51 per cent on Friday, according to mortgage market analysts HSH Associates. The jump represents an almost 10 per cent rise in borrowing costs.


In a sense, this is not unexpected: variable mortgage rates are linked to long term Treasury rates, rather than to short term Fed rates, and Treasury rates went down to unusually low levels late last year as a massive flight to safety made investors wary of any financial assets not backed by the full credit of the US government. Now that things are stabilising somewhat in asset markets, and that people start looking at US debt on a standalone basis, and not just as a safe haven, prices are moving back to "normal."

But "normal means that:


Plans by the Treasury to raise $2,000bn in new debt over the 2009 financial year are driving yields on government bonds higher and complicating the Fed's efforts to push mortgage rates lower.

In spite of a poor employment report last Friday, which typically would send long-term yields on Treasury bonds lower, they rose.

The rise was sparked by fears about the growing budget deficit and the continued appetite of foreign investors for US government debt.

"Normal" means worrying about the ocean of debt being issued by the US government to try to clean up the mess created by the Bush/Greenspan Bubble.

"Normal" is that we are suddenly entering a period where the talking heads are free to pontificate about the burden of public debt, and the need for balanced budgets (whatever happened to such virtues in the past 8 years? - oh right, there was a war and it was unpatriotic to do so, then).

But, pontificating aside, the reality is that we had a large scale grand robbery of the past few years. To make it simple: the Fed printed money, gave it for free to rich people, who lent it to poor people at at nice profit instead of paying them wages; reimbursement was possible only if house prices went up, and that lasted for a while. The rich made out like bandits on their assets, financial or otherwise, and the poor thought they were more or less keeping up with the Joneses (the reality was a large-scale transfer of wealth from one group to the other, no bonus points for guessing which was which). Now that it's no longer the case, the poor lose their house, stop paying their debt at some point, put the banks in a pickles, and the economy unravels. Except that the banks are being bailed out, which means, fundamentally, saving the owners of financial assets (bank bondholders specifically, and bond holders in general) at the expense of taxpayers, thus having the goverment validate and consolidate the past transfer of wealth.

Government debt is meant to try to delay the reckoning (but that can't last - as the headline story shows, the underlying problem is too much debt, and you can't force more debt on an economy that is already choking over - or rather, under - too much leverage); but more than anything, it is meant, as set up today, to validate all the counterfeit money that was given to the rich and loaned to the poor without changing the terms of that global transaction.

Instead, the debtors are going to be made to pay until they're bankrupt - and made to pay a second time as taxpayers (or, more importantly, as beneficiaries of government services or public services that are being cut for lack of money) for whatever they could not afford as borrowers.

Current policies are failing as expected, but the transfer of wealth continues unabated - and Obama will get the blame for it, eventually, unless he radically changes things, via massive tax hikes or explicitly confiscatory policies.

Because as parasites keep on gorging, the body underneath keeps on getting weaker and the economy will keep on crashing.

Display:
http://www.dailykos.com/storyonly/2009/2/9/83243/37438/524/695122

Thanks for your support over there, they seem to still need to hear this...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Feb 9th, 2009 at 10:01:00 AM EST
... in The Road to Tarp 3.0: Stimulus versus Bail-Out and Debt versus Leverage, and elsewhere.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Feb 10th, 2009 at 05:48:58 PM EST
[ Parent ]
To our correspondents from the USA:
Is there any possibility of a tax revolt ?
by sidd on Mon Feb 9th, 2009 at 10:39:04 AM EST
By the ruling class. Been going on for 30yr. That's a big part of the problem, or stems from the same sense of thievish entitlement that has led to the financial sector meltdown. I mean, what is the point of being on the receiving end of a massive, unprecedented transfer of wealth if you have pay taxes on your windfall?
by PIGL (stevec@boreal.gmail@com) on Mon Feb 9th, 2009 at 11:00:08 AM EST
[ Parent ]
Alice Cook at UK Bubble posts this graph and says the rise in long-term Treasury rates is caused by anticipation of massive government borrowing to come, which is why all stimulus packages are doomed in advance:

But here's the shock graph, courtesy of Barry Ritholtz:


click to enlarge

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 9th, 2009 at 11:43:49 AM EST
The second graph should be done in percentage terms rather than absolute. There's been a wee increase in total employment over the past sixty years.
by MarekNYC on Mon Feb 9th, 2009 at 12:30:23 PM EST
[ Parent ]
To me the most shocking thing is not so much the absolute values. It's the curvature. The other graphs all have a positive curvature, that is to say jobs may be lost, but they are lost more and more slowly as time goes on.

This one has negative second derivative, by the looks of it, which means that not only are people losing jobs, job losses are accelerating.

Which is way more scary than the current unemployment rate in and of itself.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Feb 9th, 2009 at 01:19:56 PM EST
[ Parent ]
In effect, job loss is approaching a vertical asymptote.  If presented in percentage form, as suggested by MT, I wonder how it would compare to The Great Depression? (1929-1939?)

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Feb 9th, 2009 at 01:36:13 PM EST
[ Parent ]
a real charmer.  And, it jives with common sense.  Everyone (i.e. businesses) is hunkering down in order to survive.  You don't want to be one of the multitude who will run out of funds, and then what?  And so the screw continues to turn, deeper and deeper.  When will it stop?  When the only businesses left generate necessities ... food, fuel (to stay warm), etc.  All the other crap of our "advanced society" ... all the electronic toys, clothes, new cars, etc.  You can live without them.  And probably will for a good long time the way things are going.

The good news ... it's only a life sentence. You eventually leave this planet of idiots.
by THE Twank (yatta blah blah @ blah.com) on Mon Feb 9th, 2009 at 01:44:24 PM EST
[ Parent ]
... it'd look more like that.

In reality, the steepest post-war recession in the US was the immediate Post-War recession, which is masked by the use of numbers of jobs lost rather than jobs as a percentage of the population ... but while that was quite steep, it was also met with prompt and strong post-war economic reconstruction policies, so the recovery was also quick.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 02:06:36 PM EST
[ Parent ]
Bang into the lamp post! So Ritholtz is now posting a percentage graph:


click to enlarge

Current job losses are roughly on a par with 1976 and 1984.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 9th, 2009 at 01:35:37 PM EST
[ Parent ]
So looking at that graph, looking at overall slope things have really been in decline since 1980?

Coincidence? or am I just intentionally misreading the graph

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Mon Feb 9th, 2009 at 01:44:38 PM EST
[ Parent ]
I shouldn't have said "job losses", though, since the red line shows the rate of change in total employment from one year to the next.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Feb 9th, 2009 at 02:31:08 PM EST
[ Parent ]
So in another view if you follow the peaks of growth down then even ignoring the current collapse the peak of growth will  be below 0% by 2030?

Photobucket


Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Mon Feb 9th, 2009 at 04:15:37 PM EST
[ Parent ]
There seems to be a downward trend in job growth since the Reagan years, yes. Not surprising given all the offshoring. And as for the growthy growth in GDP, we know who's been grabbing that.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Feb 10th, 2009 at 03:26:21 AM EST
[ Parent ]
things have really been in decline since 1980?
Since 1984, it would appear.  That was about when the process of sending manufacturing overseas in the USA really took off, and it was just after the whole bubble economy got started.  Perhaps subsequent unemployment was masked by revisions and extensions to employment categories by the BLS, (after all, the population did continue to grow,) and by significant growth being in the "underground economy."  The early 80s was also when "illegal immigration," especially from Mexico, really increased, and a lot of these workers went into the "informal" economy, such as my former gardener in L.A.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Feb 10th, 2009 at 01:19:31 AM EST
[ Parent ]
This graph is not kosher, somehow.

YoY employment changes are trending downwards, but at the same time, the unemployment rate is also trending downwards. And in this time frame, the total workforce was growing.

That's impossible. Something Has To Give.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Feb 11th, 2009 at 12:04:23 PM EST
[ Parent ]
A strange graph : it is comparing a data ad its derivative. Also, although the workforce is growing, is it growing as fast as the adult population ?

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Thu Feb 12th, 2009 at 03:26:37 AM EST
[ Parent ]
The second graph is presumably total net change, where total nonfarm jobs added (whether attributed to increasing size of labor force as compared with growth of economic activity) is inclusive, government payroll is usually excluded, and whether or not BLS firm birth/death modeling is credible.

(Un)employment data are by definition percentages of a total population willing and able to work, statutory bounds being 15 < age < death. The BLS JOLT datasets claim to count available employment, or jobs open, or unmet demand, which is silly. But entirely consistent with the current policy assumption that labor skills are fungible.


Diversity is the key to economic and political evolution.

by Cat on Mon Feb 9th, 2009 at 02:35:29 PM EST
[ Parent ]
by Jerome a Paris (etg@eurotrib.com) on Mon Feb 9th, 2009 at 02:48:41 PM EST
[ Parent ]
Thanks, this is hugely informative. So, if I interpret it correctly, we can say that this "recession" will probably be "at least almost as bad as" the global crunch of the early 1980s, but we can't conclude that it will be much worse for at least another quarter.
by PIGL (stevec@boreal.gmail@com) on Mon Feb 9th, 2009 at 05:31:40 PM EST
[ Parent ]
Looking at that, it would seem to say that the recession will certainly be worse, at least within the US, than the 1980 oil crisis crunch ... all of the prior downturns had an inflection somewhere in the range of -1.0% to -1.5%, while this one was just getting started in that range and there is no inflection in sight.

If we get an inflection now, we might hope to turn the corner at -5%, but -3% seems wildly optimistic.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 06:14:34 PM EST
[ Parent ]
I see your point, I just wonder if the data are sufficiently precise, and commensurate among periods, such that we could reliably detect inflection points or test for differences in their relative locations within the series. Chi-by-eye, you know!
by PIGL (stevec@boreal.gmail@com) on Mon Feb 9th, 2009 at 06:27:53 PM EST
[ Parent ]
... frequency as macro stats go ...

... and even more to the point, the latest monthly employment figures release showed U6 unemployment at 15.4%, so this makes over a quarter that U6 unemployment been (1) increasing and (2) increasing at an increasing rate.

The rest of the employment statistics confirms what the percentage decline in payroll employment suggests ... at the moment, employment is in free fall.

If the Us stimulus bill passes, it will of course not be enough to reverse that movement, but it might be enough to slow the rate of descent, which would be something of use.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 06:40:57 PM EST
[ Parent ]
Oh, and we are looking at the same graph. I think the evidence is pretty conclusive that this recession will not be milder than the 1981 version. Equivalently, one could say it will be at least as bad as the 1981 recession. I'm not sure the evidence is yet conclusive that it will be markedly worse. A very short time will probably tell.  
by PIGL (stevec@boreal.gmail@com) on Mon Feb 9th, 2009 at 06:32:07 PM EST
[ Parent ]
The basic story so far is that this recession, so far, resembles '82.  No great new story there.  Many predicted that.  A key difference, of course, is where the Bernanke Fed is at right now in comparison with the Volcker Fed then.  In '82, Volcker was able to contract the money supply to combat inflation, and then pull rates down dramatically to help engineer a robust recovery on the top-line numbers.

Obviously, that's not where Bernanke's at right now.  Rates are already at zero, deflation is the current state, and we're basically in a place where we're testing out theories Bernanke on Fed interventionism beyond the normal funds rate.

The chart looks really bad, even adjusting for population.  We're basically looking at declines in employment roughly equivalent to the '73 oil crisis already.  The crash is still accelerating, and we're already in the second-worst recession in the Postwar Era.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Feb 9th, 2009 at 07:04:38 PM EST
[ Parent ]
Not to mention that in the early 80s there was no significant federal debt.
Or major trade deficit.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu Feb 12th, 2009 at 05:45:20 AM EST
[ Parent ]
There was a bubble in US government bonds.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Feb 10th, 2009 at 04:56:16 AM EST
[ Parent ]
European Tribune - pushing on a string: mortgage rates increase
Current policies are failing as expected, but the transfer of wealth continues unabated

Same as over here in Europe, then.
by Bernard on Mon Feb 9th, 2009 at 12:28:02 PM EST
... lost in the noise:
but that can't last - as the headline story shows, the underlying problem is too much debt, and you can't force more debt on an economy that is already choking over - or rather, under - too much leverage

The problem is not debt, the problem is leverage.

The question is, how do we unwind the leverage?

This is especially critical since, like the US in 1929, the financial crisis was one of several shocks. In 1929, the reversal of the large government debt-financed spending program on roads as the 1920's came to an end (often overlooked by those who focus on Federal spending alone, but even today, state and local government expenditure is greater than federal government expenditure, and in the 1920's, the shares were even more heavily weighted to state and local governments), and the ongoing roll-out of protectionist policies as part of the collapse into trade blocs of the first age of globalisation ... the oil price shocks and collapse of the housing bubble preceding the Panic of 2008.

The problem is one of leverage. Useful public investment with a positive return will reduce leverage over the long term ... precisely the kind of spending that the Conservative Movement pays lip service to while devoting quite a lot of time and energy to preventing it from taking place.

And, of course, in the US in the ongoing Stimulus fight, the Republicans are fighting hard to ensure the maximum possible leverage, fighting for tax cuts with long term economic harm more likely than not, tax subsidies for going into debt to buy houses and cars, and with the stripping out of "green" provisions also implying entrenching an obsolete energy economy ... while spending on education is stripped out.

Now, under US political institutions, we have an opportunity to engage in smart investment in the upcoming budget bills, and given the gross inefficiencies built into our economy by decades of welfare for the rich, can do it on a basis that can be passed with 50 votes in the Senate.

The challenge is to come up with a financial system "bail-out" package that has a substantially smaller debt footprint. Given the public outrage over Tarp 1.0 and 2.0, the most politically feasible approach may be one that taxes the wealthy to fund the bail-out.

And ... given PAYGO legislation put into place by the Conservative Movement ... if the bail-out is in a budget bill that taxes the wealthy to fund the bail-out, that only needs 51 Senators to pass ... budget bills are not subject to filibuster, and self-funded bills are not subject to the PAYGO waiver requirement which also has a 3/5 majority required.

So the Conservative Movement with its politically adroit PAYGO legislation, designed to starve public investment in social infrastructure, may well mean that the easiest way to get a "TARP 3.0" through the legislative process is by designing one with the wealthy paying the bill.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 01:46:25 PM EST
The Fed printed money, gave it for free to rich people, who lent it to poor people at at nice profit instead of paying them wages

Regulatory tolerance of highly leveraged speculative activity by organizations and individuals is indeed a problem. However leverage is merely a description of income : debt levels.  Leverage is a substitute for income. Leverage is credit, a measure of debt capacity.

While leverage has enabled some firms to expand the market size and profitability of their operations, their wage and salaried employees have not captured a level of benefits commensurate with increasing productivity (profits). They have not captured profits because firm managers and investors prioritize distributions to themselves. Rather than even retire debts incurred by the firm, managers "roll over" principal by bond issue or worse pass through debt by M&A activity, so maintaining "interest only" fiduciary duties to employees and so-called equity holders.

The moral stands: no-low leverage is the result of no-low debt and retained earnings --which could fund CapEx and wage gains. Sadly, US don't do profit sharing with employees. US do 401(k), "defined contributions" to corporate debt.

Diversity is the key to economic and political evolution.

by Cat on Mon Feb 9th, 2009 at 03:09:15 PM EST
[ Parent ]
leverage is merely a description of income : debt levels

Leverage is a description of income : debt levels ... and that is the core problem, not the debt levels, but the debt/income ratio, since a political economy that rests on an increasing debt/income ratio is a financially unsustainable political economy.

And the ability to take on debt for the purpose of growing real income ... for instance, for the electrification of STRACNET and the reduction of the energy cost of long distance freight transport shifted onto electric rail by over 90% ... is undermined if we permit the deleveraging process to run as a ratchet that reduces the private debt/income ratio at the cost of increasing the income claims of those looking to convert fantasy wealth to real wealth.

However, the 60 vote hurdle in the US Senate has a big hole in it at the point where a budget bill get scored as not requiring a waiver of PAYGO requirements. That is when the US legislative process defaults to the Two Chamber Majority system of its original design.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 03:20:41 PM EST
[ Parent ]
However, the 60 vote hurdle in the US Senate has a big hole in it at the point where a budget bill get scored as not requiring a waiver of PAYGO requirements. That is when the US legislative process defaults to the Two Chamber Majority system of its original design.
This is perhaps the most felicitous unintended consequence in decades.  Hoist on their own petard, indeed!  But that requires that Democrats have the will to seize that opportunity.  I fear that they are so in campaign contribution servitude to wealthy donors that they will be afraid to take advantage of this opportunity.  Perhaps if there is no other way forward and they can disguise what they are doing it might come to pass.  Clinton did get taxes raised on the rich in a party line vote before the '94 mid-term elections.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Feb 10th, 2009 at 01:35:01 AM EST
[ Parent ]
... a result of some ambitious junior members looking to get publicity pushing it and lighting a wildfire ... the House leadership will never go for it unless they are facing a big public furor, of the kind that can get senior members of Congress primaried for being caught on the wrong side.

Maybe Kucinich could be one ... he's always looking to get his face in front of a camera.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Feb 10th, 2009 at 12:33:43 PM EST
[ Parent ]
security.

If it doesn't work, the gov't will pay anyway, and those that are in the public system will get cuts, just if they were the people taking more risk for more profit.

Any bets, that at some point in the next 20-30 years the federal gov't of the US will declare default on the social security trust fund?

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Feb 9th, 2009 at 03:26:31 PM EST
... the SS Trust Fund were denominated in foreign currency ... given that a government with a chartalist money supply can always meet a nominal obligation in its own fiat currency, by far the most common sovereign default is on debt denominated in foreign currency.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 03:34:19 PM EST
[ Parent ]
Can meet, if it is willing to pay the price of destroying its currency. That's the whole point. The gov't doesn't have to bail out banks. It is doing it. Since decades it is told in America, that it is not possible to pay for entitlements. Who cares, that in reality the military is sucking up all the money?

When there are complete idiots in charge, you lose. Sorry, Americans can't do gov't. Import some French bureaucrats. Maybe than you get your social security.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Feb 9th, 2009 at 07:16:17 PM EST
[ Parent ]
... impact on Medicare of the runaway price inflation in the health care sector ... those working hard at lumping Medicare and Social Security together to allow them to pretend that there is a Social Security "crisis" are playing one of two games:

(1) the first is reneging on the 1980's deal to raise regressive payroll taxes up front, to build up the "trust fund", and then to raise the main general fund revenue sources ... progressive personal and corporate income taxes and capital gains ... to redeem those "special bonds".

(2) to "privatise" social security to win a new income flow for finance sector firms.

And of course, over and above those con artists, this is the Internet, so there is also the agents of D00m P0rn.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 08:35:45 PM EST
[ Parent ]
Well, so what. If the gov't is broken (I mean, totally incompetent, possibly corrupt, loyal to people that finance campaigns instead of people that vote, etc.) it doesn't matter, if the there is no real 'entitlement crisis'. Some con artist will find a way to loot you.

Or do you believe seriously, that Obama is fixing the gov't?
LOL
Looked into the new package for economic recovery? Tax cuts and the states go bankrupt.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Feb 9th, 2009 at 11:26:01 PM EST
[ Parent ]
... by repeating and supporting the frame of the fictitious entitlement crisis?

The argument was, again:

Proves the superiority of privatising social security.

If it doesn't work, the gov't will pay anyway, and those that are in the public system will get cuts, just if they were the people taking more risk for more profit.

... is just a cheap rationalization for theft along the lines of "everyone steals".

On being called on spreading the BS about the Social Security crisis, you seem to play generic D00m P0rn as a "get out of bind free" card ... but if generic D00m P0rn applies, there are so many opportunities for the US government to completely destroy the US economy long before Social Security entitlements become an issue that, once again, the only clear reason for raising Social Security is to support the framing of those who wish to renege on the 1980's deal.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Feb 9th, 2009 at 11:37:07 PM EST
[ Parent ]
and I stand exactly by that comment. Word by word. Please make the effort to read at least the part you have cited.

I have never claimed, there is a Social Security crisis generated by entitlements. This you read in the comment without I ever having written it. I have not. You have not given any new information, I had not before. If there would be a social security crisis, there wouldn't be a trust found, that can be looted by the gov't. So I have not the slightest clue, how you could imgine I was talking about a crisis generated by entitlements. I was talking about the current financial crisis, that obviously threatens the way gov't debt was handeled in the past.

The rationalisation is not, everybody steals,but the US gov't will steal. It will steal from those, that have paid the social security. And therefore it is better not to trust it. Fine, if you are willing to be looted, so that somebody else can kill people in Iraq or Afghanistan. The looting is currently ongoing. There is no mind twisting. We see it. Even if the gov't doesn't default on the soc sec debt, it can pay it only with generating massive inflation. That will at least partially as well hurt those, that have paid.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Feb 10th, 2009 at 12:04:31 AM EST
[ Parent ]
The argument you are making, that being sheep to be shorn by the financial sector is better than being promised an entitlement that may or may not be paid in full, in dollars that may or may not have substantial purchasing power, is a relative comparison.

The test of the proposition that being part of a voting bloc in a public entitlement program is a weaker position than being a "small investor" for the finance sectors to harvest from is actually quite simple: if it was a weaker position, then the Republicans would not be continually pushing to privatize social security. They certainly are not doing it because it represents a larger slice of the national income for retirees, but because it represents a larger slice of income for those who work in the finance sector.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Feb 10th, 2009 at 12:44:34 PM EST
[ Parent ]
I don't believe, the Republicans have a consistent position. If the soc sec trust fund would be privatised now, the federal gov't's finance would be in much worse shape.

The easiest way of defaulting on the part of the social security promise, that is associated with the trust fund, is to let it grow indefinitely. For that, there has to be made the steady beat, that it is underfunded. The claim, that soc sec has to be privatised is useful for the Republicans, as long as it is not really done.

Publicly the deficit of the unified budget is usually cited, covering up, that the general tax income just is enough for 2/3 or so of the general budget. A couple of years ago the situation may have been different. The idea of the Republicans may have been to plunder the gov't to the benefit of the financial industry. But now it is pretty clear, that a crisis of the general budget is unavoidable. To counter that, there would have to be massive tax increases in the very near future, if the promises of the soc sec trust fund would have to be paid out. What is left to plunder, is now plundered by other schemes.
There maybe left over Republican talking points from the past, or they simply don't have a clue. Privatisation of soc sec now would blow of the whole game.

And which position is weaker is not so clear. Given current circumstances, I see the protection of private investors - as well small investors, bond holders of banks probably are very often private retirement fonds, to the disadvantage of the public, in which the subgroup of people with claims on soc sec are especially vulnerable to a fiscal crisis. Being part of a voting bloc seems not to be such a strong position, when Dems and Reps unite against the interests of such a bloc.

By the way, I'm not aware of any public European retirement system, that takes part of the pay roll tax as saving. In Germany it is even vice versa, that the general budget is used to bolster retirement.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Feb 10th, 2009 at 01:20:10 PM EST
[ Parent ]


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