Good link below that explains something I hadn't fully understood: the short term variances in budgetary deficit projections have nothing to do with the long term impacts of our current debt (nor our GDP growth rate). According to this article, it's all demographics. That's the "key" that I was missing. Out of curiosity, does anyone know if other major economic powers are bypassing the "baby boomer" demographic problems written about below? Also, will the flood of cheap labor into country help a little with the demographic problem? Below is the link if anyone is interested and an excerpt from the article: http://www.theatlantic.com/issues/2004/01/littlefield.htm The long-term imbalance between the amount of taxes that Americans are accustomed to paying and the level of government services that Americans are accustomed to receiving will not, however, be changed by any alterations in short-term projections. Under any reasonable set of assumptions about economic growth, the natural growth rate of health-care costs, and other important factors, the gap between what we expect to pay and what we expect to receive is enormous. The magnitude of this looming gap has been masked for the past several decades by a demographic blipâthe Baby Boom, which for nearly forty years has provided a large base of workers who contribute payroll and income taxes while consuming relatively few government services. In 2012, however, when the first Boomers hit retirement age, the situation will begin to reverse: a large proportion of the population will begin drawing more heavily on government services, while the relative number of taxpaying workers will start to shrink. Today there are nineteen elderly for every 100 working-age Americans; by 2050 there will be thirty-five for every 100. This means trouble: in 2015 Medicare taxes will fall short of Medicare expenditures for the first time; in 2018 Social Security payments will outstrip payroll-tax revenues. In short, if we don't make policy changes soon, the government's financial situation will begin imploding within the next ten years. The implications are profound: by 2050 the very nature of the federal government may be radically different. At the extremes the country has two basic options. One is to retain Social Security and Medicare as broad middle-class entitlements, maintain Medicaid, hold defense spending near present levels (about 3.5 percent of GDP), and keep the rest of the government at its current size. In this scenario federal spending would grow from 19.5 percent of GDP today to 39.7 percent in 2075, resulting in a government proportionally larger than Germany's or France's. To fully cover a U.S. government of this size, lawmakers would need some way to permanently increase tax revenue by 70 percent a yearâbeginning today. The second option is to hold taxes near current levelsâthey have ranged from 17 to 20 percent of GDP every year since 1960âwhile ending entitlements as we know them. If we decided that we wanted to keep taxes relatively constant, we would need to cut Medicare, Medicaid, and Social Security benefits in half immediately; if we waited longer to act, the cuts in those programs would have to be even deeper. The social impact of such cuts could be mitigated by, for example, subjecting Social Security and Medicare benefits to a means test, so that benefits would be reduced more (or entirely) for affluent citizens; compared with across-the-board benefit reductions, this would hold down increases in poverty and poor health among the elderly. But any cuts of this magnitude would still be likely to increase poverty, make three-generation households more common (as some seniors were forced to move in with their children), and perhaps even reduce the average American life-span, since many poor and elderly people would no longer be able to afford medical care.
They forgot to mention that the first and second options are due to the fact that interests are paid to those who have the power the use unlimited credits (see below the "MONEY FACTS" BY SUBCOMITTEE ON DOMESTIC FINANCE) to buy the bonds/debts of gov with tax people, inflate the bonds to sell at highest level as possible, deflate again and perceive the high interest rates settled during inflation phase. So there is a THIRD OPTION: GET RID OF THE SHAMELESS SEIGNEURIAL RIGHTS OF PUMPING PEOPLE'S MONEY UNDELESSLY. And this seigneurial right is has been established through the existence of the fed by a socialist government. Socialism is enslavement of people under the pretext to "free" them from capitalism whereas it is exactly the contrary : it is exploiting the naivety of people who think that socialism fight injustice whereas it is only a disguise to satisfy them psychologically and at the same time exploit them physically or moneratily ! http://www.elitetrader.com/vb/showthread.php?s=&threadid=27791&perpage=6&pagenumber=3 "Since some pople seems to ignore the tight relation between Money creation (ie debts) and level of Taxes: 47. Where does the Federal Reserve get the money with which to create bank reserves? It doesn't "get" the money; it creates it. When the Federal Reserve writes a check, it is creating money. This can result in an increase in bank reservesâa demand depositâor in cash; if the customer prefers cash, he can demand Federal Reserve notes, and the Federal Reserve will have the Treasury Department print them. The Federal Reserve is a total moneymaking machine. It can issue money or checks. And it never has a problem of making its checks good because it can obtain the $5 and $10 bills necessary to cover its checks simply by asking the Treasury Department's Bureau of Engraving to print them. 48. Who gave the Federal Reserve the power to create the money necessary to cover its checks? The Congress. Because this power to create money is given by the Constitution to Congress, only the Congress can delegate this power. And this it has done in creating the Federal Reserve Systemâan agency of Congress authorized to create money. 49. How does the Federal Reserve change the money supply? First, by increasing or decreasing the amount of bank reserves which the member banks of the Federal Reserve System have to their credit on the books of the Federal Reserve banks. Second, by regulations which tell the member banks the maximum amount of bank deposits they may create per dollar of reserves. 50. What is the formula that determines the maximum amount of money available to business and consumers? Expressed mathematically this is a simple formula A Ã B = C where: A = Amount of bank reserves; B = Number of dollar deposits member banks may create per dollar of bank reserves; and C = Total bank deposits. 51. Can the Federal Reserve authorities change the money supply formula? Yes. They can change either or both parts of the formula at any time, and they frequently do change one or both parts. There are certain limits set by the Federal Reserve Act to the changes the authorities can make. But these limits are extremely wide. 52. Does it make any difference which part of the formula the authorities change when they wish to increase the money supply? Yes. Although the effect on the money supply of changing either part of the formula may be the same, the total economic effects differ depending on which part of the formula is changed. For example, when the Federal Reserve lowers reserve requirements, all of the new money is created by the commercial banks through their lending and investing activity. This obviates the necessity of transferring Government securities from private to public hands. On the other hand, when the Federal Reserve increases reserves by, say, purchasing U. S. Government securities, the interest income on these securities goes to the Federal Reserve System. Since the Federal Reserve turns over to the U. S. Treasury most of its earnings, the net effect of increasing the money supply by increasing reserves is to favor the private banking system. So, when the Federal Reserve officials decide to increase the money supply, whether they favor the U. S. Treasury or the private banks does make a differenceâin the amount of taxes you, I, and all other taxpayers must pay.
The scheme is so simplist that even a child can understand: imagine or propose that your child plays this game - this is a good test to mesure his intelligence: he gives you a toilet paper sheet whose decreted value is 100$ whereas the cost is 0.0001$ for buying at the supermarket (by analogy it's the cost of printing paper money). This toilet paper sheet is like bonds but for getting his toilet paper-bond you have to give him real money. With this real moeny he can buy real asset like your bicycle for example. He cannot only emit 1 paper toilet but as many toilet paper sheet that he wants since the price of emission is ridiculous. If you buy many of his paper toilet sheet he would get all your money and buy with your own money your car. He could even lend your own money that has become his money and create interest rates. And he could then create a market for the bonds. And he could then inflate/deflate the bonds market so that at the end not only he has pumped your real money but also you own him interest that increases exponentially haha !
I have also followed with interest this demographic dilemma. There is no question that there has been and perhaps will continue to be a downward trend in birth rates amongst certain segments of the US population. Obviously as education costs, health care costs, etc, etc continue to skyrocket, it makes the affordability of having kids less of a reality. Compare this to the early to mid 1970's, another time in which there was a downward trend in birthrates, and you could argue that the presence of inflation might actually have a direct impact on birthrates. Regardless, the point I wanted to make is that the recent soundbites by the Republican Party with regards to granting citizenship to Mexican immigrants may, in fact, be directly related to this demographics dilemma. Since, the Treasury Dept and the powers that be already have these numbers and statistics at their disposal, one must assume that they are actively seeking alternatives. One alternative is to try and "streamline" as much of the "underground economy" as possible. Bring enough of the lost payroll and federal income taxes out of the cash businesses as possible. In turn, give the immigrants some sort of permanent residency along with the concomitant privileges of being a taxpayer. This would at least alleviate the burden of raising taxes in the immediate future and buy the politicians a few more years.
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits the public treasury with the result that a democracy always collapses over lousy fiscal policy, always followed by a dictatorship. The average of the worldâs great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to Complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage. Alexander Fraser Tyler, Cycle of Democracy (1770)
4th option is to sell properties owned by the government. Why does california want to float some bonds when all they have to do is take bids for drilling rights off the california coast. The people of california have great assets of which this isnt even on the table. USA government ALSO has great assets of which no one speaks off. The government owns land and can sell it. We could subsidize our park systems by allowing advertising on federal lands and we could put ads on our currencies to help with our debts. Some people forget america is still a capitalist nation and our people are quite resourceful and imaginative when given a chance. Doesnt usa government own over 51% of all the land in usa, I seem to recall reading the government owns more land in nevada than private citizens do.
This is in accordance of what I said: 11-19-03 09:16 AM Re: Re: Elliott Wave Calls the Top... Again http://www.elitetrader.com/vb/showthread.php?s=&postid=373424&highlight=demography#post373424 "Top of the year possibly (I predicted 9938 more than 2 months ago we didn't do it but approach it on globex at 9915) but THE top of all tops there is no sign yet all the more so that these scale depends on fundamentals and fundamentally it depends on demography and that also Prechter does know it since he had also pointed heavily on that and this is no "elliottist" discovery but classic economic knowledge. And demography should worsen around 2010."
"At the extremes the country has two basic options. One is to retain Social Security and Medicare as broad middle-class entitlements, maintain Medicaid, hold defense spending near present levels (about 3.5 percent of GDP), and keep the rest of the government at its current size. In this scenario federal spending would grow from 19.5 percent of GDP today to 39.7 percent in 2075, resulting in a government proportionally larger than Germany's or France's. To fully cover a U.S. government of this size, lawmakers would need some way to permanently increase tax revenue by 70 percent a yearâbeginning today. The second option is to hold taxes near current levelsâthey have ranged from 17 to 20 percent of GDP every year since 1960âwhile ending entitlements as we know them. If we decided that we wanted to keep taxes relatively constant, we would need to cut Medicare, Medicaid, and Social Security benefits in half immediately; if we waited longer to act, the cuts in those programs would have to be even deeper. The social impact of such cuts could be mitigated by, for example, subjecting Social Security and Medicare benefits to a means test, so that benefits would be reduced more (or entirely) for affluent citizens; compared with across-the-board benefit reductions, this would hold down increases in poverty and poor health among the elderly. But any cuts of this magnitude would still be likely to increase poverty, make three-generation households more common (as some seniors were forced to move in with their children), and perhaps even reduce the average American life-span, since many poor and elderly people would no longer be able to afford medical care." there is a third option: continue to borrow and spend. you float bonds and sell them to overseas investors and at the same time you let or help your currency devalue. over time this allows you to pay back or rollover the bonds at a fraction of their original value. of course this all depends on the willingness of overseas investors to buy our bonds. so far there is no sign of them being unwilling to go along with this plan as evidenced by our interest rates being at 40 year lows while at the same time our deficits are at record highs.
I don't agree that there is a demography "dilemna": there is above an ECONOMIC PROBLEM ! In previous generation a family has several children because the FATHER ALONE could feed 5 or even 10 of them ! Today an average family needs the FATHER AND THE MOTHER to feed perhaps only 2 CHILDREN. I don't think that this generation love less children than the previous one, and if they wanted indeed to take into account this demography they would have incited people to make more children whereas favorising immigrants under the pretext of demography is rather a fake: it is above all for provoking competition on salaries since the misery of these people will obliged them to accept more less paid job than would a non immigrant and also they constitute a good mass of electors when needed to claim for more "justice", social protection etc. whereas it is above all for justifying more and more debts on the people's money through gov's spending. The immigrants like the Defense and National Security are just pretexts to spend more and more and pump people's tax money today but above all tomorrow and for next immediate generation ie your children (see the 70% increase projected haha !). These spending go into the pocket of whom everybody knows (for 1 dollar spent for education, 5 dollars are spent for prison ) and above all they create debts and exponential interests to pay at term with taxes since the interest can only cumulate since debts are created at will through Bonds Emission of the FED ! This is the modern way of a feodal system that has adapted to progress haha !