Hear no evil, see no evil, speak no evil

This is pure insanity.  Apparently Mr. Baker didn’t read the CBO report that he uses to back up his assertions.  His basic thesis is don’t worry about social security because the report says that everything will be fine just as it is for the next twenty years.  Of course the comment thread cheers him on, because Social Security is the abortion of the left.  It’s a litmus test, and failure to pass it leads to excommunication.  Baker goes on to suggest that because a whole bunch of boomers got their equity and investment portfolio wiped out, they deserve to have the next twenty years of SS benefits no matter what.  It’s only fair.  Whoever told Dean Baker that life was fair?

First, i sympathize greatly with all the people who’ve seen their horded labor surplus evaporated in the current crises.  The nation, and the world, got hosed in the worst way.  And i agree with Baker that the hosers should not be in charge of “reforming” the frayed social safety net of the hosees.  But i didn’t hear a lot of complaining about the hosers when portfolios were vibrant and the aging watched financial services commercials depicting still spunky 60’s children in their 60’s walking palm studded beaches to the strains of muzaked classic rock.  It was all fun and games until someone threw a match in the shit-house pit, eh?

The report that Baker stands his assertions on reads (in the second paragraph no less): “CBO projects that outlays will first exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2049.” The first graph is even more frightening, but i’ll bet that Baker didn’t even read that far.  It shows the range of probabilities generated by running multiple models.  There is very little wiggle room in revenues, but outlays exist over a wide range that does not overlap with revenues very much.

And this is all using government numbers.  Never forget that these are the people who decided to manipulate the CPI by declaring that if sirloin is too expensive, people will just switch to rib-eye and be the same glutton happy.  These are the people who decided that if you been looking for a job for so long that you’ve become discouraged, then you’re magically no longer unemployed.

These are also the same people (Republican and Democrat) who decided that the best place for SS surpluses was to be “invested” in other government programs.  In other words, the long-term health of SS is based almost solely on the redeemability of government issued IOU’s.  Now ask yourself, do you trust that august body to pay on schedule?  Are you sure that said august body even has the funds to pay on schedule?  And is it ok for the government to go borrow money from somone to pay back the money that it borrowed from you?  If so, who will repay the loan to repay the loan?

No, SS should not be “invested” in the markets any more than it should be “invested” in government spending.  No, SS should not be reduced to the point where it can drowned in a bathtub.  Yes, it is terribly important and the people who’ve paid into for a working life should not be hung out to dry.  And no, the pricks, assholes and morons who’ve made so many messes should not be in charge of addressing the question.

But let’s be realistic.  If you didn’t shudder uncontrollably and have a brief wish for God to take you now when Obama let names like Rubin and Summers pass his lips, then i have a sure-fire investment program that you want in on.  You’ll be whistling atrocious arrangements of overplayed Beatles songs on a beach in no time.

Dean Baker must be planning on leaving the mess to his kids as an inheritance.

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~ by Lex on February 13, 2009.

7 Responses to “Hear no evil, see no evil, speak no evil”

  1. Lex,

    What most people dance around in denial is that a huge currency debasement is around the corner. Since most world currencies have been declining in value on average since 1941, the recent increase in money supply(every currency in the world) increases the probability of a debasement within the next ten years, threefold. People are going to get hosed big time, especially the savers that invest in fixed incomes, annuities, and other forms of saving that anticipate a stable currency. That’s why the government debt isn’t going to mean squat, as the people are the ones getting gamed. I’ve been loading up on art, rural property, and precious metals with my spare cash. I’ve also been buying lots and lots of stock in good companies at “On Sale” prices. As the Boy Scout motto includes, “Be Prepared.”

    Social security is a mess, but then again anything done by politicians is not in the best interests of the citizens.

    Jeff

  2. Jeff,

    I’ve been wondering about the future of currencies (particularly the dollar) lately and wanted to ask you a question. The turmoil of the markets has sent people fleeing to treasuries, strengthening the dollar. Are we seeing the creation of a dollar bubble?

    I understand that the bursting of a dollar bubble will eliminate government debt since our debt is denominated in dollars, but i have to imagine that it won’t be very pleasant for average people whose savings and income is denominated in dollars. From what i saw in Russia, massive currency revaluations have a strong negative effect on the social fabric. Any thoughts?

  3. Lex,

    I don’t know if the concept of dollar bubble would be apt in this case. However, everyone wants US paper like treasuries, notes, bonds, bills, which tends to be bullish for the dollar in abstract terms. In the short term, this could be considered bullish for the dollar, but this is where the giant house of cards comes in effect. Since the dollar is the reserve currency of the world, the central banks will do whatever to add liquidity to the system to offer nominal protection . But, one must realize that the real duty of the central banks is to protect the banks, not the economies or the people. The US is too big to fail, and the rest of the world begrudgingly accepts this fact. No matter how you look at it, we’re so much better off than the rest of the world, especially in the eurozone. Until recently, our debt was a very manageable percentage of our GDP. Now, it is out of control, but so are the debts of the rest of the industrialized countries. My models show the dollar holding it’s own against the rest of the currencies, with the exception of the yen…..in the next 6 months. Beyond that, things are really hazy.

    I once caused quite a stir over at S&R when I said that the government debts didn’t matter because they won’t be paid back anyways. They really will be paid back, but in the 100 trillion dollar notes that will be enough to buy a loaf of bread.

    A currency debasement would cause serious problems with the social fabric of this country, but not as bad as it would seem IMHO. For one thing, currency debasements affect savers the most, and we’ve never been a country of savers, but one of raw consumers. We won’t be as affected as the thrifty Germans post WW1 for instance. The rich invested in cash will get a real haircut, but the sagacious might come out really ahead. I look at tough times like this and wonder how many future Googles, Microsofts, and Apple Computers are being created out of this turmoil.

    I do remain very bullish on the stock market in the long run. There are very good companies on sale right now, and many stocks offer great dividends. Since most of the money is scared, and on the sidelines, stocks will probably continue to perform poorly. I like to buy stocks at the ugliest of times, and right now is getting ugly. The market doesn’t like Obama, and I think that is still being in the process of being priced in. Every time Obama opens his mouth, the market sells off. In fact, the specialists at the exchange tune to Bloomberg just to see if Obama is speaking and hit the bid immediately whenever he opens his mouth. That doesn’t bode well for the value of people’s 401-K’s. People, markets, and prices tend to travel in herds, and I have a good link to a download of Mackay’s book which should be required reading for everyone.

    http://www.gutenberg.org/etext/24518

    Serious damage is being done by the government trying to prop up the stock market and real estate markets. The market will automatically move up or down to where it will trade and outside interference just will make the later pain worse.

    If you ever want to check out some old market related books, I have a section over on my blog of downloads for books. Actually, I have three sections of books…..market, the classics, and Tom Swift.

    Jeff

  4. Thanks you guys, that’s really interesting.

  5. Thanks, Jeff. I’ll be looking into the books because i’m trying to get a handle on the how’s and why’s of economics…generally.

    I guess that i have some pretty negative feelings associated with currency debasement because i lived in Russia right after the ’97 Asian crises and saw the debasement of the ruble first hand. Though i know how and why the two situations are dissimilar, it is still hard to separate them emotionally.

    You know, the idea of it being my grandmother trying to sell plastic shopping bags for less than a penny on a frozen street corner in order to find something to eat is rather unnerving…even if it is so in an irrational way.

  6. Lex,

    Although it’s easier said than done, as far as financial moves are concerned, it’s essential to have a dispassionate attitude if only for self protection. Emotions will kill you every time. Hope, fear, and excess greed have been the undoing of many otherwise rational people.

    Witnessing social upheaval like you did must be really tough. The only thing I can relate to that might compare is the different crashes I’ve ridden out. During those times, emotions would spell doom, and I suspect that the same would be the case in a total economic meltdown. However, the way I am wired, I’d look for opportunity in a meltdown, but then again I’m always on the lookout for opportunity. The way I look at things is there’s nothing that individuals can do to affect markets for more than the shortest term, as the markets are going to move wherever. One might as well go along for the ride.

    If you’re interested in economics, instead of studying Keynesian economics which is the darling of the left, you might want to study the Austrian School, especially the work of von Mises. I’m not a follower of the Austrian school per se, as I blend a bit of Chicago school and the philosophy of Adam Smith in my ideology.

    Another guy I like to read is Albert Jay Nock, although he’s not an economist. Check him out sometime. \

    Over in my blog under my market related book downloads, I have a download called Secrets which is at the bottom of the list. That book is an extremly rare, out of print book of Bacon’s “Secrets of professional Turf Betting” which is really an essay of life, not just about betting the horses. Very good read. A copy, if you could find one, would cost you a couple hundred dollars.

    Jeff

  7. Jeff,

    I understand what you’re saying about emotion. In general, it’s not a good way to make decisions. As far as social upheaval goes, i really don’t worry about myself. My emotions rise only in relation to the old and the young that i love.

    I’ve heard a lot of talk about free markets, and the phrase always takes me back to Russia. I mean, if you want to talk about free markets at the fundamental level that was it…particularly because it wasn’t a classic, third world nation of illiterates etc. People who could quote Pushkin at length, physicists, everyone was just scrambling to get by. In a strange way it was enlightening to see civilization with everything that makes it “civilized” stripped away. Just raw life left over.

    I do worry about America because i think that we’ve grown pretty soft, but that’s another story.

    And i agree that there will be opportunities that we wouldn’t even currently consider. Destruction goes hand in hand with creation…at least according to the Hindus.

    I’m particularly interested in the Bacon essay, and i’ll be heading over to grab it sometime this week. I’m pretty non ideological (as much as that’s possible), and actually tend towards the conservative when it comes to economics. I’m certainly not scared off by thoughts/actions that might get me excommunicated from political groupings.

    My gut feeling is that different situations/problems/opportunities often call for different solutions, and the trick is to find the round peg for the round hole. it is one thing to be guided by ideology and a whole other thing to become a prisoner to it.

    Lex

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