Economy, the Fed, Gold Rush..

Discussion in 'Commodity Futures' started by Josh_B, Jan 30, 2003.

  1. Babak


    Iraq will become a democracy, but it won't be easy or quick.

    A while back the same sort of nay sayers (or their grandfathers) had the same reservations about Japan. After all, these people had NEVER known democracy.

    How can a people steeped in a feudal system crowned with a Deity/Emperor ever become a democratic, liberal society?!?

    Well....guess what? It did.

    And it is one of the world's most solid democracies and societies. Not perfect. But its no Italy (where they change gov'ts faster than sox).

    Oh and it has the US to thank for that. (But I'm sure msfe/wild will say that's just "utter nonsense") :)

    Sorry! I just realized that I may be taking this thread down a 'political' debate road and I don't want to do that. Mea culpa. Lets go back to the markets, gold, stocks, etc. :)
    #51     Apr 25, 2003
  2. Josh_B


    Congress Approves Record Debt Limit
    Fri May 23, 3:05 PM ET

    By ALAN FRAM, Associated Press Writer

    WASHINGTON - The Republican-led Congress passed legislation Friday allowing government debt to grow by a record $984 billion, brushing past Democrats' attempts to spotlight the federal IOUs that have resumed piling up under President Bush.

    The Senate gave the bill final congressional approval by 53-44, only hours after lawmakers had passed $330 billion in new tax cuts through 2013, a major priority for Bush and Republicans on Capitol Hill. D emocrats want to link that and other tax cuts Bush has won to the government's mounting debt. But GOP senators were united in an effort to get the measure to the White House — and out of the political limelight — quickly.

    Looking to intensify pressure on lawmakers to approve the bill without amendments, Republican leaders did not bring the measure to the Senate floor until the House had left town for a weeklong Memorial Day recess. The House had avoided a direct vote on the debt limit by reviving a rule that made its approval of a borrowing increase automatic when Congress finished its annual budget last month.

    "The House is no longer there," said Sen. Craig Thomas, R-Wyo. "The fact is we need to go forward."

    With the outcome not in doubt, the debate was a political exercise. Democrats argued that federal interest payments on the mounting debt are draining the budget of money needed for basic federal programs.

    "That is a debt tax that every taxpayer has to pay, it is a debt tax that robs this generation and future generations of the ability to make our own fiscal choices," said Sen. Max Baucus, D-Mont.

    After running annual surpluses during the last four years of the Clinton administration, federal deficits have returned. This year's is expected to well exceed $300 billion, a record, and huge future shortfalls are expected with no end in sight.

    Bush's certain signature would boost the government's debt limit to $7.38 trillion, enough to let it borrow money until sometime next year.

    The Treasury Department had warned it needed the extension by next week "to preserve the confidence in the U.S. government and to prevent uncertainty that would adversely affect our economic recovery." The current $6.4 trillion limit was breached earlier this year, and Treasury paid its bills by shifting money from government retirement and other funds, maneuvers it said it could not make again.

    Failure to extend the borrowing limit could lead to a first-ever federal default — something neither party wants to be blamed for.

    The bill is H.J. Res. 51.

    But now it's getting more interesting.

    The $44 trillion hole
    Recent study says Social Security, Medicare shortfalls could be far bigger than previously thought.

    May 29, 2003: 1:33 PM EDT
    By Mark Gongloff, CNN/Money Staff Writer

    NEW YORK (CNN/Money) - Many economists worry that the U.S. federal budget deficit could approach a record $500 billion this year.

    Few, however, have grasped that the fiscal problems facing the United States could make an itty bitty $500 billion deficit look like pocket change.

    Try $44.2 trillion on for size.

    That's the total "fiscal imbalance" figure Jagadeesh Gokhale, an economist with the Cleveland Federal Reserve and the American Enterprise Institute (AEI), and Kent Smetters, an economist at the Wharton School of the University of Pennsylvania, calculated in a recent, unpublished study about new methods of federal budget accounting

    What the number represents is the difference between all the government's future obligations -- mostly Medicare and Social Security benefits, which will explode when Baby Boomers start retiring in large numbers -- and all the government's future revenue.

    The point of the study, which will probably be published by the AEI in July, was to note that current methods of crunching the numbers, which don't look beyond the next 75 years, understate the amount of money the government will have to pay in the future. The standard 75-year method, they say, shows a mere $16.3 trillion shortfall.

    The policy implications of the study are staggering -- they could result in drastic tax increases, cuts in federal spending and benefits, or both.

    "The problem is pretty urgent, and we don't have any time to start dealing with these problems," Gokhale told CNN/Money. "If we do nothing today, the cost of postponing action grows over time."

    If the problems aren't corrected, the study shows, the already huge projected shortfall could grow to $54 trillion by 2008.

    Gokhale said fixing the massive shortfall, assuming the government chooses not to cut Social Security and Medicare benefits, will soon force the government to pick from a "menu of pain," in the words of economists Laurence Kotlikoff and Jeffrey Sachs, who in a recent opinion piece in the Boston Globe first reported the findings of the Gokhale-Smetters study. The options:

    boost individual and corporate taxes 69 percent

    raise payroll taxes 95 percent

    cut non-Social Security and non-Medicare spending 56 percent

    eliminate all other federal government spending

    some combination of each of these four measures
    These are ugly scenarios that haven't gotten wide public discussion. The Financial Times reported Thursday that the study was commissioned by Paul O'Neill when he was treasury secretary, and Smetters told the Financial Times that White House advisers Lawrence Lindsey and Mitch Daniels read and were "very engaged" with the study.

    The Financial Times report implies the study's findings were meant to be included in President Bush's 2004 budget proposal but were dropped at the last minute. Smetters told the paper the study results were only omitted from the budget because O'Neill, Lindsey and Daniels all left the White House and Bush's new advisers hadn't had a chance to fully analyze the study's findings.

    The Treasury Department, for its part, denies having anything to do with the study. Gokhale said it was meant only to be a "talk piece" and that he never talked to O'Neill. Smetters could not be reached for comment.

    But the Social Security Administration has started using the Gokhale-Smetters accounting method to project future deficits, and Gokhale is hopeful the rest of the government will soon follow suit.

    "We need these measures because we need to be able to evaluate the trade-offs involved and the alternative methods of solving the problem," Gokhale said. "To do that, we have to take the full fiscal imbalance into account."

    The economy needs to pick up fast or something has to give. It seems that more dollar devaluation, negative interest rates and precious metal speculation could be in the horizon.

    #52     Jun 3, 2003
  3. Josh_B


    It is understandable that the economy needs help to recover.
    But isn't the following proposal somewhat far out there? Is it possible that it will ever become reality?

    ...The Fed is also considering unconventional means if money velocity shrinks. Fed senior vice president Marvin Goodfriend of the Richmond Federal Reserve branch first proposed a study of implementing a "carry tax." This tax would be imposed on cash if consumers don't spend the money as fast as the government wants it to. Essentially this tax would be designed to eliminate the problem of zero-bound interest rates. The tax would lower the value of the currency the longer it is held without making a transaction. In effect, it becomes a negative interest rate, which punishes cash holders for preferring to hold on to their cash. It would be designed to eliminate the Japanese problem where consumers and investors have preferred to hold on to cash as their assets deflated in the stock and real estate markets.

    In my opinion, besides the constitutional problems this would present, it would most assuredly backfire. As the government continues to depreciate the currency, implementing a carry tax would force investors and savers into "things" as they see the value of their assets depreciate such as paper assets and real estate and the value of things they need go up in costs. People would simply put their money into "things" and avoid paper. The most valuable asset under these conditions would be the only real money that has ever existed throughout history: silver and gold....

    complete article along with other issues covered at

    Japan is considering the same, effective next April.

    Japan Weighs Radical Deflation Therapy
    Benjamin Fulford, 06.09.03, 9:50 AM ET

    TOKYO - Japan is considering taxing all cash and savings in an effort to force its people to spend their money or lose it, according to Shukan Gendai, a leading Japanese newsweekly.

    The plan, as outlined in the magazine, calls for an annual tax of 3% to 5% on all savings and time deposits in the country. The aim of the move is to force Japanese savers to either buy consumer goods or put their money in stock, bonds or real estate to avoid what in effect would become a steep negative interest rate on their savings.

    To stop people from simply hoarding cash, the magazine says the move would take place next April when the Japanese government plans to replace current currency with new, hard-to-forge bills. Old cash would be exchanged for new cash after the government takes a 3% to 5% cut and inventories how much people have stashed away.

    If people fail to change their old bills before that time, they will become worthless pieces of paper. Needless to say, underground money held by gangsters, tax cheats and others would be forced into real estate, bonds or stocks...

    I guess desperate times require desperate measures.

    #53     Jun 10, 2003
  4. Babak


    "Monetary policy cannot influence the growth rate of the economy by having an effect on aggregate demand in the long run. Economic growth depends on the productivity and the supply of factors of production such as labour and capital. No central bank in the world is able to increase its country's growth rate permanently by printing money or even by reducing the nominal interest rate to zero."

    -Willem F. Duisenberg
    President of the European Monetary Institute
    (from speech in London, 27 November 1997)
    #54     Jun 11, 2003
  5. Josh_B


    Government Statistics: Lessons in Cooking and Spinning
    By: Richard Benson, SFGroup
    June 12, 2003

    A government is no different in behavior than any corporation in its desire to show the best possible report. For a corporation, there is a bias in reporting high revenues and earnings. For government statistics, it certainly makes the US appear healthier if the GDP is bigger, personal income is higher, and the number of people working is greater. However, when accounting games are used to push up reported numbers that reach a certain level beyond reality, a false sense of security can lead to very bad decisions, both for individuals and the government.

    If you are curious about seeing some "jaw dropping" numbers on the economy, take a look at Table 8.21 of the Bureau of Economic Analysis, titled "Imputations in the National Income and Product Accounts" (since the latest data that is available is for 2001, linear trends can be used to estimate current numbers). Right off, you'll notice that if total GDP is about $11.5 Trillion, at least $1.7 Trillion of GDP is "imputed."

    What is an imputation, and why should we care? Imputations are the part of GDP that the government decides to estimate, where no cash changed hands, kind of like we "scratched each other's backs." Wouldn't it be a tragedy if this type of activity wasn't counted as REAL GDP? Some of the largest numbers are for items such as $300 billion of Personal Income, imputed for the value of having a checking account (free of charge); $680 billion for the value of owner occupied housing (you should really be paying yourself rent), and $65 billion for the benefit people get from using the property of nonprofit institutions, like going to a church or having a place to hang out during the day. We believe the $300 billion for the value of checking accounts doesn't even pass the laugh test. Perhaps there was value back in the 1950's when it was expensive to clear checks and a case could be made for some measure of value. But, in today's world, just try and bounce a check, use your ATM card in Europe, or pay your credit card one day late....

    ...Why do these imputations really matter? Our economy has become a debt driven economy. Consumers routinely spend 10% more than they make each year by taking on more debt. Debt service and debt total levels are at record highs. However, debt can only be serviced with cash flow. With imputations there is no cash flow. While GDP might be $11.5 Trillion, the cash economy is less than $10 Trillion. The reality is that we have 15% less cash flow to service debt than we think. If corporations "goosed" their revenues because they could use "imputed revenues," the management would go to jail.

    ...Look at the Flow of Funds data. The data for the first quarter of 2003 shows household debt growing at 10%, and mortgage debt growing at 12%. It also shows that household net worth dropped! This is astounding. According to one set of government accounts, personal savings is running a strong 4% plus. When you view the entire picture even with housing prices going up, personal wealth actually dropped, and the percent of equity held in homes hit an all time low after dropping 2% last year. People are spending the equity in their homes faster than it is accumulating. Households are eating their "seed corn" because their income does not support their lifestyle and level of spending.

    When you examine government statistics, think about the way the books are being cooked and how the government is spinning the data. Then, think about why the Fed is making money so "easy" and why they continue to encourage you to overpay for homes and stocks. The government is looking for volunteers to take on more debt and keep spending. Greenspan is actually beginning to give investment advice.

    Be careful!

    Full article

    Does it look like Enron, Global Crossing, etc. accounting style?
    Interesting times ahead.

    #55     Jun 19, 2003