Quotulatiousness

March 14, 2011

Government debt: “U.S Treasuries increasingly look like Wile E. Coyote running in midair; they’ll keep selling only as long as nobody actually looks down”

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 16:17

To borrow a phrase from Monty at Ace of Spades HQ, here’s a hot steaming bolus of DOOM for you, courtesy of Eric S. Raymond:

Insolvency is no longer a sporadic problem, it’s become pervasive at all levels of government everywhere. This is why the recent brouhaha in Wisconsin was so surreal. The public-employee unions weren’t just rearranging the deck chairs on a sinking Titanic, they were fighting to preserve their right to bore more holes in the hull.

When these are the objective conditions, what point is there in arguing that the whole system is corrupt and that middle-class entitlements have to go on the scrap-heap along with every other big-government program? It’s going to happen anyway soon enough. A year ago the U.S. government was only taking in a third of what it needed to cover annual outlays; today it’s so much worse that individual monthly deficits are larger than the entire Bush administration’s. The money’s all gone. Our options are closing down to default or hyperinflation.

It’s going to get ugly out there. A lot of old people are either not going to get their pensions and Social Security at all or get them in hyperinflated dollars that won’t be worth anything. Anyone else dependent on government transfer payments will be similarly screwed. Urban poor, farmers, veterans, the list goes on. Imagine the backlash when that really hits — when it sinks in that the promises were lies, the bubble has popped, the Ponzi scheme is over.

March 4, 2011

A model of how government pension schemes work

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 12:04

It’s all so immense that it’s hard to understand, so Karl Denninger reduces it to an easy-to-comprehend model:

Let’s start with the model but take it into the real world. We’ll use you and I.

You set up a business. I’m a “trustworthy guy.” You have employee who you wish to provide a pension.

So every week when you pay them, you take out $100 from their paycheck. You have 10 employees (including yourself) and you come to me with your $1,000 every week and give it to me. I take it.

But instead of sticking it in an account somewhere with your name on it (as a trustee would) I instead give you a piece of paper. It says I owe you $1,000. But it’s not a debt security. You cannot negotiate it like a check, nor can you sell it to anyone else — it’s only valid if you bring it back to me. It says so right on the face. I promise that if you bring it back I’ll give you the $1,000.

Here’s the problem — as soon as you leave I call up my 10 stripper friends and the local liquor store and throw a party. Guess what I use for the money? Your $1,000.

Now here’s the rub — I don’t have any other money. At all.

In fact, I’m in hock up to my neck. I earn $100,000 a year but I spend $170,000. And how do I do this? Well, among other things I have people like you giving me money to “save.” I also have a bunch of credit cards, and everyone thinks I’m a great guy — kind of like an uncle (just call me “Sam”) and so they keep raising my credit limit.

It’s a wonderful life, isn’t it?

Well, maybe for a while.

But there is a problem with this model. First, this isn’t a “Trust.” A Trust can hold funds for someone, and can even invest them in something, but the funds cannot be converted to the trustee’s use. They must be held segregated and not inure to the benefit of the trustee. Further, the trustee must act solely in the best interest of the beneficiaries of the trust, not their own interest. That’s black-letter law.

Then there’s the second problem — I didn’t invest the money. I blew it, and all of the rest of my money.

One day you come and ask me to redeem one of your $1,000 IOUs. I don’t have any money, but I have a cash advance available on the credit card — or at least I think I do. So I go to the local bank and pull a $1,000 cash advance, giving you ten crisp $100 bills.

Notice what just happened: As soon as you showed up, your IOU, which in fact had no legal status as debt, had to be turned into actual debt at that point in time. Now there really is $1,000 in debt out there — it’s on the credit card.

This is exactly what happened with Social Security and Medicare since Reagan’s “reform” of the systems in the 1980s. Every single Administration since has taken all the money and immediately blown it. There is no money.

January 25, 2011

Did Ayn Rand experience “delivering oneself into gradual enslavement”?

Filed under: Bureaucracy, Liberty — Tags: , — Nicholas @ 07:29

Patia Stephens investigates whether Ayn Rand and her husband ever took social security or medicare benefits:

Critics of Social Security and Medicare frequently invoke the words and ideals of author and philosopher Ayn Rand, one of the fiercest critics of federal insurance programs. But a little-known fact is that Ayn Rand herself collected Social Security. She may also have received Medicare benefits.

An interview recently surfaced that was conducted in 1998 by the Ayn Rand Institute with a social worker who says she helped Rand and her husband, Frank O’Connor, sign up for Social Security and Medicare in 1974.

[. . .]

According to a spokesman in the Baltimore headquarters of the Centers for Medicare and Medicaid Services, Rand and O’Connor were eligible for both Part A, which provides hospital coverage, and Part B, medical. The spokesman said their eligibility for Part B means they did apply for Medicare; however, he said he was not authorized to release any documentation and referred the request to the CMS New York regional office. That office said they could not locate any records related to Rand and O’Connor.

November 5, 2010

Monty on the social security Ponzi scheme and Ireland’s coming crisis

Filed under: Economics, Europe, Politics — Tags: , , , — Nicholas @ 12:11

The always interesting Monty reminds everyone that social security won’t be there when you most need it:

Generational warfare is all but a certainty at this point as the lie that is Social Security festers and grows unchecked. All I can say is: reality will assert itself, sooner or later. Don’t get caught short — save enough of your own money to fund your own retirement, because Uncle Sugar is going to screw you just as surely as the sunrise. Pull quote:

There will be pain. The system will gore a lot of oxen. The obvious victims will be the oldsters who have become dependent on Federal handouts. They are a powerful swing vote today, but they are in the minority. When the majority of working citizens finally perceive that it is an inescapable choice between handouts to oldsters vs. their families’ solvency, they are going to vote away the oldsters’ handouts.

Social Security only survives at the suffrance of the taxpayers who fund it. Pay particular attention to the part where it’s explained in terrifyingly clear detail that it doesn’t matter how much you paid in: you were paying a tax, not a contribution to a savings account. Uncle Sam can legally stiff you at any time.

And on the Irish financial crisis:

That Irish austerity program just went from “painful” to “Oh my God I think I just barfed up a lung”. The problem in Ireland, as in Greece, is that you somehow have to convince your own citizens to accept dire reductions in their own quality-of-life to make sure that (mostly foreign) bondholders don’t have to take a haircut. I suspect that this strategy will fail, and end in default. Which, really, is probably the best course of action for the PIIGS — get off the Euro, go back to the old national currencies, and devalue. Yes, they will be shut out of the credit markets for a while, but not for all that long in relative terms. And the alternative — extreme civil unrest — is worse.

May 11, 2010

A quick spin through Canada’s refugee program

Filed under: Bureaucracy, Cancon — Tags: , , , — Nicholas @ 12:13

An interesting article at the Montreal Gazette looking at the current refugee system in Canada:

Want to know why Canada’s refugee system is a shambolic mess that leaves claimants in limbo for years while bleeding taxpayers for uncounted billions?

It’s not just because anyone from anywhere in the world can claim asylum in Canada simply by showing up at the border or in one of our airports and lying, although that helps.

It’s not the usual suspects, either. It’s the review process that is severely broken, encouraging abusers and discouraging legitimate claimants. The time it takes for an applicant to go through the process is breathtaking:

Average wait, with local taxpayers picking up half the tab for the welfare on their property taxes (the rest comes out of your provincial taxes): 19 months. [If turned down,] they can apply for leave to appeal to the Federal Court.

Average wait for a court date: four to six months.

If a risk assessment is required they wait another nine to 24 months. They can also return to federal court for another go, waiting yet another four to six months.

On welfare. For most of the world’s poor, “that’s pretty attractive,” Kenney points out.

If the courts still say no to our Swiss claimant the alleged refugee can appeal for admittance to Canada under Humanitarian and Compassionate grounds, which takes at least six more months. If they lose that they get another crack at federal court, waiting four to six more months.

On top of the 12,000 claimants allowed in under current refugee rules, another 40,000 try to get into the country every year. Nearly 6 in 10 of these claimants are refused refugee status by the courts, but the number of cases increases faster than the applications are processed. The current (admitted) backlog for applicants is 61,000 and growing. An unknown number have just abandoned the process but (in many or most cases) haven’t left the country: they’re underground, hoping not to get caught.

The federal government is hoping to pass reforms to the refugee process, raising the number of legitimate refugees allowed in annually, but cutting down on bogus claimants earlier in the process, with an eye to both improving fairness and cutting the costs of supporting the current system.

H/T to Kathy Shaidle for the link.

A trillion dollars doesn’t buy as much as you’d expect

Filed under: Economics, Europe — Tags: , , , — Nicholas @ 07:54

It doesn’t, for example, buy exemption from the laws of economics:

European Union President Herman Van Rompuy said European governments need to consider pooling their national powers and create a joint economic government.

“We can’t have a monetary union without some form of economic and political union and that is our big task for the coming weeks and the coming months,” he said.

He said he would draft tougher rules for EU leaders to discuss in October that go beyond current EU limits on debt and deficit.

The core problem is near-zero economic growth, high unemployment and governments unwilling to take painful steps to get people to work more and longer.

Simon Tilford, an economist at the Center for European Reform think tank, warned that EU governments so far haven’t come up with anything “game changing.”

“What Europe needs is a growth pact because without growth, public finances aren’t going to be sustainable,” Tilford said. “The bond markets are going to be forcing them to make those kind of changes.”

Even EU president Van Rompuy warned that the bloc risks irrelevance and the end of its expensive welfare programs if it can’t speed up economic growth, forecast to expand by just 1 percent this year.

“With 1 percent growth we can’t finance our social model any more. With 1 percent structural growth we can’t play a role in the world,” he told the World Economic Forum in Brussels. “We need to double the economic growth potential that we now have.”

So even with a trillion dollar injection, you still can’t spend more than you make, year after year, and hope to carry on as if there wasn’t a problem. Who knew?

April 16, 2010

Exposing the truth about government-run Ponzi schemes

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 09:22

Kathy Shaidle is exactly right in her analysis of the key weakness of the Tea Party movement:

The Tea party movement contains the seed of its own failure

It preaches self-reliance and small government, but old people still want their pittance of gubmit cheese, ie Social Security.

If they/we were intellectually honest, we would be calling on the raising of the eligibility age to 90, which is more in line with Bismark’s original plan: a little pension for those who were never expected to live long enough to ever get it.

It was meant to be a “look how generous I am” gesture with no real impact; the original designers never thought we’d live long enough to cash the checks.

Older Tea Partiers (and all of us) should be petitioning the government to write everyone a one time check for the exact amount they were forced to contribute, plus maybe 5% interest if that is do-able.

And then the program should be abolished.

I hope most of my readers are not depending on their “government benefits” to get them through in their retirement years: the economics of the situation almost certainly won’t allow it. There are several problems with government-run retirement schemes, starting with the fact that most of them are not in any sense of the word “funded”. Most governments have been using the contributions as a giant low-interest revolving fund: you contribute, they withdraw and leave a promissary note in the kitty. The promissary note is drawn on you and your children. There is, technically speaking, no money in the kitty.

The people who will be worst hurt by the necessary changes to government pension schemes are the ones who earned too little (or spent too much) during their working lives and didn’t make any private provision for retirement. As Kathy points out, the first government pensions were designed so that most potential recipients would be unable to collect, because the start date of the pension income was set beyond the average lifespan of the population. Looking forward to a pension would be much less realistic today if the official “retirement age” was set to 90!

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