I was going to take the day off but then I read some of the news and if there ever was a time to write a blog post – it has to be today.
One of the best parts of my life was reading bedtime stories to my kids. Now they read them to me. Ha ha. Just kidding. But I did love reading to them. So it occurred to me that some of the fairy tales I am reading now in the press will have a bigger effect on them than Dr. Seuss or the Man in the Yellow Hat.
Fairy tale #1. A matter-of-fact story came out today about Medicare and Social Security funding and how the latter was fine until 2037. The story didn’t use Al Gore’s memorable term, Lock Box, but it did re-conjure-up that illusion. You know what a lock box is, right? Basically it is a physical thing that keeps money in it so that when bills come due you can pay them. Or it can be a physical thing that you bury in your backyard and tell your kids to dig it up when you die. Your kids, not having had a very good education in our failing public schools, will believe that old Dad and Mom have placed some very valuable items in there. Once they dig up the box and clear away the dirt – they will be rich!
Anyway, that’s what most of us think is a lock box. Al Gore made the mistake of likening the balances in the Social Security Trust Funds to a lock box. And that is why Al Gore had to sit in the corner and eat cold porridge. Anyway, imagine that your son digs up your lock box – opens it up – and finds a piece of paper in it. The paper contains a note that says, “honey, we spent all the money on Cognac and we would recommend that you ask your sister for a loan. We do love you very much.”
You think I am kidding. I think not. This year. THIS YEAR the social security tax revenues are not large enough to pay the beneficiaries (old helpless creatures who need Cognac). But the Social Security Trust Fund (SSTF) will make up the difference. What is the SSTF? A large pile of ten dollar bills? Is it a bunch of gold? HA HA – I think not. It is a bunch of paper that means the Federal Government must pay back what it borrowed in the past from the SSTF. The Federal government puts money back into the SSTF – and then they pay it to the retirees. Where does the Federal Government get the money when it already has a very large deficit? It gets it from raising your taxes! There is nothing in the lock box except a note that says the government promises to makes you charge higher taxes! Even worse, the amount in the SSTF – the amount the government borrowed from it over many years – will run out in 2037. The lock box will not only not have money in it – it won’t even have any more I-owe-yous. This means that your taxes will go up more and more and more as we approach 2037. My son will be approximately my age in 2037.
Fairy Tale #2. It was announced that President Obama does not want to take his latest brainy remedy for unemployment through Congress. Instead he can make a Presidential mandate that allows the Fannie/Freddie twins to spit smoke and fire. Or at least Fannie/Freddie will be able to give more mortgages to people without having to deal with all that silly paperwork. What a burden for bankers to ask embarrassing questions like – “could you ever from now to eternity pay us back one red cent you are borrowing for this Italian villa that was recently transported and reconstructed brick by brick in Ellettsville IN?
Okay – we’d love to see people buying more houses. That would be good for the economy. Homes would be built, developers would be able to go on Rhine Cruises, and more workers would get jobs. But geez you guys, how much does the government need to do beyond the lowest mortgage interest rates since Hugh Hefner was a baby? And didn’t the current crisis result mostly from subprime housing loans? Why on this earth would our president want to go down that path again? Why? Because of Fairy Tale #2. He does not have to listen to congressmen wail about budget deficits and debt. Future Fannie and Freddie liabilities can be increased infinitely today without the numbers actually showing up in the official government budget figures. Of course we know that granting loans without scrutiny will lead to government funding of the bad loans – and that will eventually show up in the budget. But these numbers will not be recorded today nor will they show up before Halloween.
THE KING HAS NO CLOTHES, THEY SCREAMED! But it is just a fairy tale. There is a lock box and we shouldn’t worry about social security. We can fix the economy by giving people low-interest loans that do not have to be paid back by the borrowers. I can lose 100 pounds of unwanted fat by taking the latest pill.
Good night kids. Sleep tight and don’t let the bed bugs bite.
"Hugh Heffner"? methinks you are needing more attention....bu that would be fairy tale #3
ReplyDeleteMr. Yachts,
ReplyDeleteHugh Heffner is old. I guess I could have picked Joan Rivers or Larry King.
Hi Larry,
ReplyDeleteUsually I am the one complaining about you being too optimistic while I sing the blues, but not today. I can still remember words of advice from my rich uncle way back in the late 1950s. Ike was prez and someone asked him if he was worried that the dems might come to power.
His reply was "I made money when the Republicans were in power and I made money when the Democrats were in power".
While I agree with your point that the emperor has no clothes I also think that to some extent it is the result of a perfect storm. Bush's unpopularity at the end of his term, Obama's "new age" strategy of getting the nomination by front loading red state caucus delegates and staying close in big state primaries, success of guys like Franken because of third party candidates, and lock step voting with ultra libs by conservative dems who will probably lose their seats in 2010 are only a few of the things that contributed to the perfect storm.
Projections are for the repubs to gain lots of seats, probably take the house and end the filibuster proof senate at worst. This should result in ending lots of this issues you detail, and hopefully doing it in time.
Sure my 401 took a hit, and I am worried about inflation. But I try to remember what my rich uncle said.
Thanks Tom -- I know a lot of people think I take an optimistic tone. But that is not my intent. Much of what I write is the result of what I think are people who either purposely or not don't tell the full story. Some people get fame and fortune by exaggerating current news. Regardless of party or ideology, the people who see the US economy as about to fall off a cliff, I think, are dead wrong. So it gives me a lot to write about. If you forecast a major depression every year in this century, you might get it right once or twice. That could be enough, however, to get your photo on the front page of some newspapers. Anyway, I think the US economy has a lot of pluses and it really gets my goat when I read doomsday. But while I see strengths in the US economy and I write about that, I also have spent a lot of words explaining why I think it could take a lot of time to recover from this last bout of weakness. And I think the road back will be harder and longer if we continue to apply more and more stimulus as we try to reform healthcare, energy, etc. I am not sure if that is optimistic or pessimistic -- but it reflects my reactions to what I consider are wrongheaded policies. This is too much fun!
ReplyDeleteMr. LSD. Indiana has been getting very favorable press lately regarding its success in ending its fiscal year with a $300 million surplus, due to Gov. Mitch Daniels, a mucho fiscal conservative, former budget director under Bush. Maybe the solution for the U.S. is for Daniels to run for Prez, although last night on FNC he told Chris Wallace he was not declaring a candidacy.
ReplyDeleteCharlie,
ReplyDeleteAnd he drives a Harley!I read a newspaper report this morning that says he is not ruling out running. So I am guessing that he is a possible presidential candidate. He is an interesting guy -- pretty low key. But he did arouse a lot of hatred for gutting education this year. It would be interesting if he and Evan Bayh ran...Can you imagine all the jokes about a Hoosier president! How many Hooiser presidential candidates does it take to change a light bulb?
I like Tom's comments. I agree with them. It is a perfect storm. Bush and several presidents before participated in using sub prime financing (not just for houses) as a way to drive the economy. They cheered when the service industry dominated the manufacturing side. They not only cheered but they allowed US companies to make ( they say cheap labor) goods in other countries and avoid import duties when shipping them back to the US...it does not work going the other way. The Bush raised a bunch of money to support a war that never should have happened by selling treasury notes to the Chinese as did FMFM and hiring private contractors ...who now have defrauded the government of millions of dollars. I know that is political payback. At the epicenter of the storm we have Obama with his intellectuals guiding the country into prosperity (well, OK the small businesses got left out and he saved government jobs that would have been lost by towns, cities, schools and states who could not manage their budgets). usually as the storm passes we see the damage but the spin machines are busy at work publishing the very thing that got Larry going to begin with. Other than moving to some third world country where our savings are worth something...what can we do?
ReplyDeleteJim,
ReplyDeleteI doubt there has every been a time when the average adult looked around and said -- wow, isn't everything wonderful! Our parents and their parents had to deal with two world wars and a great depression. We dealt with Vietnam and Ga Tech football coaches! Whether in government, business, or not-for-profits, there are mean and selfish people who try to take advantage of the rest of us. So what do we do? First, we focus on our family and friends and try to live a good life. Second,we vote or we do what we can to lean against the corrupt and evil practices we see around us knowing that there is often not much we can do about them. I guess we can see it as positive or negative. But I think it is simply what is and what will always be. Pet your wife, squeeze the dog, and have a nice cold one.
Larry;
ReplyDeleteSimply said and correct.
Thanks Jim!
ReplyDeleteFan & Fred is our economy's equivalent of the man behind the curtain from the Wizard of Oz. Politicians expound on how Wall Street's greed has scourged our nation. But don't pay any attention to F&F's role as cheerleader and funder of all those sub-prime loans. As long as F&F remain in existence and given political cover by a politicians, the bailout economics will continue unabated. Pull the plug on F&F, I'm fairly certain that the market will come up with a pretty workable solution to provide liquidity for mortgage lending without having us taxpayer's continue to eat F&F's losses each quarter. I'm full enough already, thank you!
ReplyDelete