US Economy, Currency and Federal Government

[seshnath]

I was trying to do a bare back to the basics analysis of US Economy.

 

There is lot of talk in the media that Fed is the problem - look at the balance sheet:-

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9c

 

And drilling down into currency,

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab11

 

It will tell you that the currency is issued on the basis of Treasury, Agency and other obligations.  (Arguably, gold stock is being valued at $40, so the backing is higher than it looks, so what?.)  At least there is backing.

 

Now, looking at US government itself,

 

http://www.fms.treas.gov/finrep/finstmts/fr_fin_stmts.html

 

Look at the balance sheet and statement of operations, 13 trillion in the hole end of last year!!!  A loss of 2 trillion, just last year.

 

Look at the statements of net cost - 4 trillion in cost - half between health and military.  Offset by about 2 trillion in individual income taxes.  Holy ****!!!!!  was my first reaction.

 

My question is not really about solutions to the obvious problem.  My question is, am I missing anything on the positive side?  Is there some hidden asset that can be monetized?  I will start with the first answer:-

1. there is the taxing power.  ::)

 

 

 

 

[vinod1]

2. The ability to print money must count for something. Since some amount of inflation (1-2%) is widely accepted to be necessary, this at a minimum provides one source of funding that is not accounted for. If Govt were to auction of the ability to print money, what would be its value?  Bidding starts at $10 Trillion. :)

[seshnath]

2. The ability to print money must count for something. Since some amount of inflation (1-2%) is widely accepted to be necessary, this at a minimum provides one source of funding that is not accounted for. If Govt were to auction of the ability to print money, what would be its value?  Bidding starts at $10 Trillion. :)

Hasn't that ability reached its maximum already?  It is very clear from the balance sheet. 

[Green King]

3. The strongest military in the world. 

4. The constitution (If restored)

How would the numbers look if a take away the bush tax cuts?

[scorpioncapital]

You may want to look at this chart of US wealth: http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

 

Something like over 100 trillion for all entities.

[seshnath]

You may want to look at this chart of US wealth: http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf

 

Something like over 100 trillion for all entities.

All entities are fine, 77 trillion in networth - How would US Government transfer those assets to its own balance sheet without suspending the bill of rights?

For instance, how would Romney's houses become US government assets? (other than through the exercise of power of taxation)

[seshnath]

3. The strongest military in the world. 

4. The constitution (If restored)

How would the numbers look if a take away the bush tax cuts?

 

3. You can't really go on the offensive (meaning, violating rights of other nations) with the strongest military anymore in this 21st century world.  It is more of a white elephant.  (Don't get me wrong, I am all for the individual soldier who is&/willing to sacrifice/ing his life.  We are talking about more than defense collectively with military).  US can get concessional treatment for its companies (may be) from countries it helps out (say like Libya, Iraq); but it is more like sales and marketing expense for a business than cost of sales or capex.

4. Constitution, as far as I know, still exists - as it has in its present form since the last amendment made.  Enforcing it, is where failures are there.  Besides, how would that produce income or reduce spending?

[ERICOPOLY]

My father (74) has the ability to pay for his own health care and all other costs, yet the US government pays him social security and health benefits.

 

The system is foolish.  The first thing I'd do as dictator is bring in an old age pension scheme that one qualifies for after age 67 only if that person does not have a means to support himself.  This pension does not vary in amount from person to person based on how high their taxable earned income was during their working lives.  It is the same amount for each person.

 

Once you become dependent on others, you are lucky to be getting any help at all.  You can't sit there and complain that you deserve a pension twice as large as the next guy simply because you had a higher paying job and he had a low paying job.  Those days are gone, you didn't save enough, you are lucky to be getting assistance.  You are no better than the next deserving person and aren't going to get more than him.  The system isn't designed to show that you are somehow superior to the other recipient, it's just designed to keep you clothed and fed.

 

It boggles my mind that we pay more to some people and less to others.  And why pay people at all if they don't need it?  Time to scrap social security and bring in something that makes more sense to this dictator.  It's a social net right?  Just make it a net to catch the fallen.  You know, even Warren Buffett gets a social security payment.  It's fu**ing absurd considering the system is broke.

 

So basically, just rethink what a "safety net" actually is.  It's to catch the fallen.  Duh.  Why do we run things like we currently do?

 

[twacowfca]

My father (74) has the ability to pay for his own health care and all other costs, yet the US government pays him social security and health benefits.

 

The system is foolish.  The first thing I'd do as dictator is bring in an old age pension scheme that one qualifies for after age 67 only if that person does not have a means to support himself.  This pension does not vary in amount from person to person based on how high their taxable earned income was during their working lives.  It is the same amount for each person.

 

Once you become dependent on others, you are lucky to be getting any help at all.  You can't sit there and complain that you deserve a pension twice as large as the next guy simply because you had a higher paying job and he had a low paying job.  Those days are gone, you didn't save enough, you are lucky to be getting assistance.  You are no better than the next deserving person and aren't going to get more than him.  The system isn't designed to show that you are somehow superior to the other recipient, it's just designed to keep you clothed and fed.

 

It boggles my mind that we pay more to some people and less to others.  And why pay people at all if they don't need it?  Time to scrap social security and bring in something that makes more sense to this dictator.  It's a social net right?  Just make it a net to catch the fallen.  You know, even Warren Buffett gets a social security payment.  It's fu**ing absurd considering the system is broke.

 

So basically, just rethink what a "safety net" actually is.  It's to catch the fallen.  Duh.  Why do we run things like we currently do?

 

The US Social Security System wasn't set up as a welfare scheme, but as something with more dignity--a small pension for those who worked hard during their employment years,  especially because most wage earners then were self employed or worked for employers who did not have retirement plans. 

 

A separate scheme, SSI, was later set up as a far less generous welfare plan.  Then, for efficiency, Congress decided that SSI should also be administered by the Social Security System.  Administration of these two systems by the same agency gives the impression that the Social Security System has morphed into a quasi welfare  program.  Lumping productive retired workers and their families together with needy people who have never had significant employment demeans those workers who paid into the system and are now getting a much lower return than they would receive under a private plan.

[scorpioncapital]

"All entities are fine, 77 trillion in networth - How would US Government transfer those assets to its own balance sheet without suspending the bill of rights?"

 

Let's say $70 trillion in assets return just 2-3% (10 year treasuries?), that would cover the annual deficit of 1-2 trillion. The government has no wealth so obviously it comes from people through taxes, modifying contracts, the sale of public assets. Basically, all we need is a wealth tax of just 2% on all assets, which means people need to get maybe 4% to break even. But actually, the government is already doing this through inflation. Inflation at 2% is just that tax. So I think we'll be just fine over time.

[seshnath]

So I think we'll be just fine over time.

"In the long-run, we are all dead" is something that comes to mind. 

 

No question that over time, we will be fine.  I am an optimist. 

 

I like the wealth tax idea.  I always wondered why there was no such thing in the US and instead has an estate tax.  Seems that you can't escape taxes by dying.

 

Also, wouldn't the wealth tax put a downward pressure on GDP and other income taxes.  (The model in India is that wealth tax is not tax deductible for income tax purposes.)

 

 

 

[ERICOPOLY]

You greatly misunderstand the origin of the US Social Security System.  It wasn't set up as a welfare scheme, but as something with more dignity--a small pension for those who worked hard during their employment years,  especially because most wage earners then were self employed or worked for employers who did not have retirement plans. 

 

I do not "greatly misunderstand" it.  As an aside, has anyone in history managed to have a civil conversation by first insulting the position of the other?

 

I vastly prefer a welfare system to what we have today, which is actually functionally the same as a welfare system except:

1)  the rhetoric is different

2)  everyone qualifies for it and the people who had the highest means to save ironically get the most income back from it.

 

I say they are functionally the same because in both cases you have benefits being paid by tax dollars, not from a pension fund.

 

Tweak the eligibility (only people who need it) and change the rhetoric but keep the taxes.  What does that do for the finances of the country?  Yet it still functions as a safety net.  I'd say that's a success when you can greatly reduce the cost without undermining the most important aspect -- keeping the safety net.

 

How can people complain after allowing the government (voted in) to run the finances this way for so long?  A generation of people (the baby boomers) that enjoyed the booming years of the middle class is now expecting a struggling and smaller generation to support them directly through tax transfers, EVEN IF THEY DON'T NEED THE MONEY.  I just think that something is basically wrong with this.

 

[Vish_ram]

It is fools gold to pursue these two "Taxing power" & "print your way out"

 

1) There is a limit to the taxing power if you follow Laffer curve. It gets counterproductive beyond a point. In a global interconnected world, an individual country has no power. Look at GE. they moved everything to offshore to hide taxes. The wealthy individuals also setup offshore accounts to minimize or evade taxes. How much can you squeeze the middle and lower class?

 

2) If US wants to retain their status as world currency, they cant print their way out. It is again self-defeating.

 

 

[ERICOPOLY]

How much can you squeeze the middle and lower class?

 

A few ideas that increase taxes without hurting the present cash flows of the middle and lower class:

 

Eliminate tax deductions on contributions to IRAs/401ks and other such plans in excess of $10k per family

Eliminate mortgage interest deductions (for most people it doesn't exceed the standard deduction anyhow given these low interest rates)

Eliminate property tax deductions on homes values that exceed X amount in tax assessed value.

Eliminate second home deductions

Increase licensing fees for private boats/aircraft/third cars

 

I'm sure the list can go on and on.  There are so many things that are obviously not going to impact people of lower classes.

 

I think my favorite thing to cut (even before home mortgage deductions) would be to eliminate deductions on contributions to plans like 401ks/IRAs.  By definition this is money that is taxable excess and won't hurt household budgets if taxed today vs way out in the future when it is withdrawn.  When my wife and I both worked, our federal income tax bill would have doubled (at least) if not allowed to deduct those contributions.  We would have merely contributed 25% less.  I doubt the lower class contributes anything to these plans.

 

 

 

 

[ERICOPOLY]

Found an article that suggests pretty much only the wealthiest 20% of taxpayer take part in IRAs/401ks, and they were going to be saving the most already anyhow (they have both the means and the discipline).  It just basically amounts to a tax cut that doesn't help the 80% that need it most. 

 

One would think that the costs of such retirement savings contribution plan tax deductions and consequent income spreading could instead have been used to bolster Social Security.  These plans first lower the taxable income for the highest earners, and then we argue that we can't afford Social Security and must cut it back instead!  How did the conversation lead to this?  Why aren't we instead arguing that we can't afford the IRA and 401k plans that mostly the wealthy participate in?

 

 

 

http://www.cbpp.org/cms/?fa=view&id=290

 

  Households in the top 10 percent of the income spectrum hold more than half of all assets in 401(k)s and IRAs.  Those in the bottom 40 percent of the income spectrum hold only about 5 percent of these assets.

 

Existing tax incentives for pension saving are “upside down”:  they are worth the most to people at very high income levels — who are the most likely to save on their own anyway — and worth the least to lower income individuals, who most need to save more for retirement.[9]  Tax Policy Center analyses show that under current law, the top 20 percent of households receives 70 percent of the tax breaks associated with 401(k)s and IRAs.  In contrast, the bottom 60 percent of households receives only 11 percent of these retirement tax subsidies.  Moreover, nearly all — 95 percent — of those who did not contribute to retirement accounts in 1997 had incomes of less than $80,000.[10]

[watsa_is_a_randian_hero]

5.  Real estate assets.  Federal Government owns approximately 703 million acres of land still.  http://www.propertyrightsresearch.org/2004/articles6/state_by_state_government_land_o.htm

6.  IMF special drawing rights

[twacowfca]

You greatly misunderstand the origin of the US Social Security System.  It wasn't set up as a welfare scheme, but as something with more dignity--a small pension for those who worked hard during their employment years,  especially because most wage earners then were self employed or worked for employers who did not have retirement plans. 

 

I do not "greatly misunderstand" it.  As an aside, has anyone in history managed to have a civil conversation by first insulting the position of the other?

 

I vastly prefer a welfare system to what we have today, which is actually functionally the same as a welfare system except:

1)  the rhetoric is different

2)  everyone qualifies for it and the people who had the highest means to save ironically get the most income back from it.

 

I say they are functionally the same because in both cases you have benefits being paid by tax dollars, not from a pension fund.

 

Tweak the eligibility (only people who need it) and change the rhetoric but keep the taxes.  What does that do for the finances of the country?  Yet it still functions as a safety net.  I'd say that's a success when you can greatly reduce the cost without undermining the most important aspect -- keeping the safety net.

 

How can people complain after allowing the government (voted in) to run the finances this way for so long?  A generation of people (the baby boomers) that enjoyed the booming years of the middle class is now expecting a struggling and smaller generation to support them directly through tax transfers, EVEN IF THEY DON'T NEED THE MONEY.  I just think that something is basically wrong with this.

 

I apologize for the insulting language in my first sentence.  I'll withdraw it.  I appreciate your thoughtful and insightful comments, and I agree that we should keep the discussion objective and collegial. 

[oec2000]

I don't think the problem is a lack of solutions. There is enough brainpower in Washington DC to arrive at workable solutions. The problem is that the system does not reward (in fact, it penalises) people who come up with the truly good long term fixes - because good fixes for the economy are usually bad ideas for getting elected.

 

It's exactly what we are seeing in Europe today.

 

And, it is exactly the same actions (policies that pander to the voters) that got into the current mess we are in.

 

The problem is self-interest and wrong incentives - what is needed are solutions to these.

[seshnath]

5.  Real estate assets.  Federal Government owns approximately 703 million acres of land still.  http://www.propertyrightsresearch.org/2004/articles6/state_by_state_government_land_o.htm

6.  IMF special drawing rights

Both are already on the balance sheet.