Archive for August 13th, 2010

Laurence Kotlikoff: U.S. Is Bankrupt and We Don’t Even Know It

Friday, August 13th, 2010

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act…

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future…

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Original Link.

Judge Refuses Request to Delay Decision Striking Down Proposition 8, Doubts Ban’s Backers Have the Right to Appeal

Friday, August 13th, 2010

What can I say about this? I’m saddened by the ruling, but not the least bit surprised by it.
I guess all I can say is “hang on for the ride”. God isn’t going to allow this to go unanswered.

SAN FRANCISCO — The federal judge who overturned California’s same-sex marriage ban has more bad news for the measure’s sponsors: he not only is unwilling to keep gay couples from marrying beyond next Wednesday, he doubts the ban’s backers have the right to challenge his ruling.

Chief U.S. District Judge Vaughn R. Walker on Thursday rejected a request to delay his decision striking down Proposition 8 from taking effect until high courts can take up an appeal lodged by its supporters. One of the reasons, the judge said, is he’s not sure the proponents have the authority to appeal since they would not be affected by or responsible for implementing his ruling.

By contrast, same-sex couples are being denied their constitutional rights every day they are prohibited from marrying, Walker said.

The ban’s backers “point to harm resulting from a ‘cloud of uncertainty’ surrounding the validity of marriages performed after judgment is entered but before proponents’ appeal is resolved,” he said. “Proponents have not, however, argued that any of them seek to wed a same-sex spouse.”

Walker gave opponents of same-sex marriage until Aug. 18 at 5 p.m. to get a ruling from the 9th U.S. Circuit Court of Appeals on whether gay marriages should start before the court considers their broader appeal. Their lawyers filed an request asking the 9th Circuit to intervene and block the weddings on an emergency basis late Thursday.

They argued the appeals court should grant a stay of Walker’s order requiring state officials to cease enforcing Proposition 8 “to avoid the confusion and irreparable injury that would flow from the creation of a class of purported same-sex marriages.”

Depending on how the 9th Circuit rules, same-sex couples could begin tying the knot in California as early as next week or be put off while the appeal works its way through the court and potentially the U.S. Supreme Court as well.

California voters passed Proposition 8 as a state constitutional amendment in November 2008, five months after the California Supreme Court legalized same-sex unions and an estimated 18,000 same-sex couples already had married.

In refusing to suspend his ruling for more than a few days, Walker agreed with the lawyers who sued to strike down the ban that it’s unclear if Proposition 8’s sponsors have legal standing to appeal.

Although he allowed the coalition of religious and conservative groups that sponsored the measure to defend the lawsuit during the 13-day trial over which he presided, the judge said appellate courts have different rules for deciding when a party is eligible to challenge a lower court.

Based on his interpretation of those rules, it appears the ban’s sponsors can only appeal his decision with the backing of either Gov. Arnold Schwarzenegger or Attorney General Jerry Brown, Walker said. But that seems unlikely as both officials refused to defend Proposition 8 in Walker’s court and said last week they see no reason why gay couples should not be able to tie the knot now.

Original Link.