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Join My Fantasy Accounting League
For this edition of Join My Fantasy Accounting League, how about a brief thought experiment for the early morning Zero Hedge Reader?
Let us assume:
2010 GDP for the United States of $14.3 trillion.1
Total marketable and non-marketable public debt outstanding: $12.3 trillion.2
An average interest rate on public debt of 3.290%.3
2009 total federal receipts of about $2.16 trillion.4
of these:
44.19% in individual income tax.
of these:
71.20% from the top 10% of taxpayers by adjusted income.
87.00% from the top 25% of taxpayers by adjusted income.
6.80% in corporate tax.
41.70% in social insurance related taxes.
3.07% in various excise taxes.
1.22% in estate and gift taxes.
1.11% from customs duties.5
Given the recent electoral unpleasantness and a religious experience you had at 4am in the Lincoln bedroom (Rodney Dangerfield, descended from above, tasked as a divine messenger to deliver the mandate for a balanced budget) you have decided to institute an emergency cost cutting and revenue program before Becky Quick is elected as the Budget Bimbo Party's candidate for Congress.
After forcibly deporting a large fraction of the House of Representatives and permanently dissolving the Senate after one too many phone calls from Al Franken (in other words, two) you manage to trim what was $3.80 trillion in federal outlays in 2009 by about 40% so that 2010 outlays before interest expenses roughly match projected receipts: about 15% of 2010 GDP (projected with a 4% year on year growth from 2009) of 14.87 trillion for a total of around $2.3 trillion.6
That wasn't so hard. Was it?
Now all you have to do is find revenue to cover the annual interest expense on your debt. Given the effectiveness of your revolutionary global "extraordinary creditor rendition" program, you have managed to lock in fixed rates for all your outstanding public and intergovernmental debt equal to the fantastic variable rate of 3.29% you were enjoying in December of 2009. That's quite a deal in this environment and considering the majority of your debt was due to mature in 90 days or less and whack you with serious roll-over risk. That fear is gone now that you've converted all your debt to fixed 30 year instruments at bargain basement rates. Nice work!
Not much more cost cutting you can do since the Department of Housing and Urban Development mysteriously had half their staff go missing during a field trip to Laredo. So now you have some options to generate the revenue required to cover your annual interest expense. For instance:
You can boost the revenue you receive (i.e. income tax rate) from the top 25% of income earners in the country (basically anyone earning more than $75,000) by not quite 47%.
That probably isn't going to be popular. Why don't you focus instead on the "hyper-rich?"
You can boost the revenue you receive (i.e. the income tax rate) from the top 10% of income earners in the country (anyone over about $118,000) by not quite 58%.
There's certainly fewer of them. Let's hope they aren't armed.
Actually, maybe it would be better if you stuck it to those faceless corporations instead? No one likes corporations, right?
You can boost the revenue you receive (i.e. the tax rate) from corporations by not quite 266%.
Come to think of it, they do have expensive lawyers, don't they? What about if you just poke the children of the uber-wealthy in the eye with the sharp stick of the IRS? I mean many of them aren't even born yet, how are they going to complain? What if you lay the interest expense burden on the estate tax instead? Well, you'd boost it about 1480%. That'll teach them. What are people going to do? Stop dying or something?
Well now. That's a pretty tidy bit of work for a couple of weeks and a few billable hours with some overtime for the 82nd Airborne. What next?
Well, there are a number of off budget items you could start with?
What about $1.5 trillion in unfunded state and local pension and health care liabilities? No?
What about $107 trillion in unfunded Medicare and Social Security liabilities?
Hey, where are you going? We're just getting started!
- 1. Flat versus 2009.
- 2. Department of the Treasury, December 2009.
- 3. Treasury reports this average and 2009 reported actual interest expense of $383 billion seems to be in the ballpark for ~$12 trillion outstanding.
- 4. Department of the Treasury, December 2009.
- 5. Based on 2007 figures from the IRS Summary of Latest Federal Individual Income Tax Data, 1980 - 2007
- 6. Department of the Treasury, December, 2009.
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I have tried this exercise myself many times, many ways. I don't think it's possible without enormous pain and suffering. People think it's easy until Grandmother has to move in with you because you killed her income.
AHHHH, but you've forgotten about the time tested method: Redistribution through inflation and devaluation. Your 2% savings tax will be going to 6% for a while.
Numbers, Smumbers, they never make sense and besides you can't win elections based on facts, everyone knows that. Better to beat on the bankers for cover and then start up the machine.
Get ready savers, you're about to pay for political mismanagement. And guess what, there is no where to hide, even in gold.
Sucks being in the minority.
At this point, the only logical thing to do is to get the military-industrial economy pumped up on steroids.
WWIII commences in 30 minutes.
Reminds one of the movie - "No Escape"
Great experiment - enjoyed greatly - and thanks, ZH !
JO
It is but the recent cold wave that keeps the extreme heat wave from engulfing us. I think Crisismode had no way to get unstock from his guns.
If you mean --- a fantasy league as in fantasy football it could work this way ----
You (a player) pick a team of financial experts--- other players can pick some of the same experts ---and you score when your team member gets an accurate perdiction.
You can have offensive team members (bullish) and defense (bearish) --- short term -- long term ---extra points
I don't want to play --- it is ---- already ---- too ---- boring---zzzzzz---zzzz
Call a meeting of the House and Senate. Tell each representative that for every billion dollar reduction in spending they personally implement they will immediately receive 10 five hundred dollar bills under the table. I won't do the math, but estimate a balanced budget after six months.
The answer is easy if you take it logically....
You just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don't need to discuss much
Just drop off the key, Lee
And get yourself free
All these unfunded liabilities point to 1 thing.
Must read: http://www.hussmanfunds.com/wmc/wmc100119.htm
US military expenditures in 2008 are estimated by the Stockholm International Peace Research Institute at roughly $600 billion. But even if you could eliminate all military spending it comes to only 15% or so of federal outlays. Yikes.
so thoroughly enjoy deep thoughts by Marla Singer.
thanks for sharing your deft touch with us, Miss M.
I was just wondering why, given this scenario, you would want to double down on this fast approaching catastrophe except the realization that the Goose has only one more golden egg in her before she croaks and you are merely "seizing the historic opportunity" to get it.
Entirely on topic, apparently the good citizens of Singapore are getting a bit worried about the increasing number of foreigners seeking refuge.
Why do I have to try to directly "fix" the problem? Why can't I seek protection from creditors, file bankruptcy and let the masses riot for a couple of months? Then we'll set up a new US capital in Grinnell, Iowa and start over with an unpaid citizen legislature.
couldn't the government just put it on the VISA card and make minimum monthly payments of $15.00?
I calculate that you only need a little more than $400 billion. That comes out to around $1,200 per person, so a tax increase (under this rosy scenario) should allow you to cover the interest. Alternatively you could cut the defense budget in half ($300 billion) without actually putting the nation at risk for anything (remember that most of that money is actually the offense budget, defense is cheap), and the remaining $100 billion would be easy to raise.
They won't do it. Cutting the military is hugely unpopular with the rednecks in flyover country and you would immediately spike unemployment by another 1-2% because the bottom half of last year's (and this year's, okay, every year's) graduating high school class has got to go somewhere. Also, think of the knock-on effects of there being no war and no massive occupation--all those contractors back in the states with no work.
War is the ultimate Keynesian solution to whatever ails your economy. It creates demand by ensuring that people and material get used up on a regular schedule.
Great irony. Or you are a complete libtard idiot.
"you are a complete libtard idiot"
What is your story Anon #200648?
Not saying they would, but that they could. I agree with your view of the political reality of things.
You got this by dividing $400 billion by 300 million people in the United States or so, didn't you? How many people, exactly, do you think report positive taxable income amounts every year? Give you a hint, in 2007 the top 10% (more than 71% of all income tax collected) was about 14 million people. Changes things a bit, no?
Certainly does. So I will assume an additional $12K per year (average, graduated rates) on the top 10%. This still would be in line with tax rates in some European countries, or the top brackets in the United States in previous times, which did not cause financial ruin.
Really this is an academic exercise (fantasy league), though, as someone has to balance the budget (ex off balance sheet entitlements) which won't happen. But it is possible. Even the Wiemar Republic managed to balance its budget in less than one year with some serious austerity measures. I would suggest as a first step for the United States, giving up its empire and raising the Social Security and Medicare eligibility ages dramatically. This won't happen either, though.
Not much more cost cutting you can do since the Department of Housing and Urban Development mysteriously had half their staff go missing during a field trip to Laredo.
How about a reduction in salaries/sick hours/vacation (hundreds of hours) of federal employee's (Special ED Congress included)--how does one assume that it is their right to get COLA every year yet eliminate SS COLA for the next 3 years=smooth. As for the missing buyer of TB's one might look into the current SDR program that has been up and running for some time now. Last page tells the story.
Happy cutting
http://www.bea.gov/scb/pdf/2010/01January/0110_itaq_text.pdf
As of March 2009 there were 1,970,529 federal employees, of which 699,919 work for DoD. You really think cutting their salary is the best place to start. The numbers are tiny. You could cut one non functional DoD weapons or aircraft program and come up with more money.
I agree you can suspend COLA, but again the savings are tiny.
Reworking sick and vacation doesn't really save money. Leave is accrued on a pay period by pay period basis, not given up front. You are still paying that individual for 2087 hours a year at the same rate whether they are on paid leave or not. Screwing with people vacation is a wash because any productivity gain from having people there more often is offset by ill will engendered by screwing with someones benefits.
Anon I should have been a little more broad based on my .02.
My statement should have included all gov employees and would not include military pensions within the solution.
Numbers are not tiny and benies should be reigned in-latest number of government employees as of 2006-link-I believe that number today is closer to 24 million-thats a lot of suckle.
http://www.data360.org/graph_group.aspx?Graph_Group_Id=147
Same Anon here.
If we are talking about Federal civilian employees, my number was correct and does not include military, just civilian DoD.
http://www.fedscope.opm.gov/employment.asp
I do not include Federal contractors, of which there are over 10 million who work for private companies, not direct hires for the government. Would you like to interfere with the benefits of companies like Boeing or IBM?
Federal pensions have been greatly revised since the introduction of FERS in 1987. What was once a possible 80% of salary now is a possible @20% if maxed, accompanied by a 401k equivalent plan and SSA. Prior Federal pensioners under CSRS didn't get SSA even though they paid into the system.
As a government pensioner, I am willing to make this pledge. IF the federal government can balance its budget with an additional 2% left over for deficit reduction with a statutory requirement that no new debt would be issued, roll over excepted I would be willing to contribute 50% of my pension (since it is so meager I do not make it to the level that calls for federal taxation making me one of the evil free riders) to direct federal debt retirement IF a senior managing partner at Goldman Sachs would match me by contributing 50% of all their direct and indirect compensation and all other forms of remuneration to the same effort. Any takers?
The senior managing partners are already doing this (added up state, federal, and FICA lately), and more if their in NYC (what is that income tax rate now 10%?). Plus you add in the 40% corporate tax rate that gets taken out of their profits before the individual gets his comp, and they're more than pulling their weight.
This even goes for GSAM which might be getting a substantially lower tax bill due to carried interest.
So, Miles, step it up and help us get there by doing your part as promised.
How about this idea? Declare a national emergency and draft all GS employees into indefinite service, you know, kind of like the draft. We can even pay them the same amount we pay soldiers and put all their current company compensation toward paying back all the government monies they have received to date( See Reggie's list). If they don't like it and choose to run there is always the firing squad. Since Mr. Kendig is a disabled veteran I'm sure he'll appreciate this approach.
I'm sure we can count on the full support and cooperation of GS since they are such a patriotic, philanthropic, God-fearing group of people.
Real classy. Way to put down 2 million working Americans. The Federal employment system needs a major overhaul, but to impugn a whole extremely diverse group just shows your ignorance.
I don't know about all that. I do know that it may be time to reintroduce the concept of national service to the financial industry and perhaps a way to assist the SEC along would be to staff it with financial services professionals serving under a national service obligation. Especially since a minuscule number of financial services professionals ever actually serve in uniform. Perhaps 3 years when under 30 and another 3 when they are over 50. After all, uniformed service commitments total 8 years between reserve and active/reserve service so I am sure a 6 year active commitment for the ability to get a 500K annual Wall Street minimum wage job and 2K food stamp meals works out.
Anon - No, they aren't. Besides, as a 100% disabled war veteran I have already had my future earning capacity absorbed by past government action in the effort to defend you, GS and every other individual, commercial & governmental organization in return for $2,675.00 a month. Wanna enter into a notional total return trade? How many at GS are in the position of having their total future earnings replaced with a $2,675.00 monthly stipend in return for the services you provide to society?
Tax receipts go to finance financial bail outs, debt service on the cold war, government operations since and of course, roll over of this debt with the corresponding return to GS. Once the conditions outlined in my offer are reached then talk to me about sacrifice for the nation and it citizens and organizations.. This is the ground upon which my offer stands. I am willing to give up half, similar to an IMF enforced austerity regime and I am offering a pact with an unnamed GS senior managing partner to do the same since we both appreciate that our national future is going to require such action. I suppose this is the real reason GS is looking to move off shore......
How about anyone who wants assistance needs to be registered for tax in the US?
http://www2.goldmansachs.com/worldwide/cayman-islands/index.html
I like to play "fantasy accounting". Here's how I play.
The current event is a deleveraging. It will end either with a currency blowup, or a still-functioning return to sane leverage levels. Global leverage ratios at the peak were estimated to be about 40:1. Let's call sane levels 10:1, so leverage needs to fall by a factor of four. How do we do that? Print money to replace the lost capital on which the credit (leverage) was based, plus print enough to make up for the reduced leverage.
How much money? Well, global capital losses have been estimated to be about $3.4 Trillion: http://www.bloomberg.com/apps/news?pid=20601100&sid=aCHss4gvkku8
So we're going to print the equivalent of four times $3.4 Trillion, or $13.6 Trillion, globally. Before the crisis, the US monetary base was about $800 Billion, and for the Euro it was, say, 150 Billion Euro = call it $200 Billion. So say we had a monetary base of $1 Trillion pre-crisis. This means we need to expand the monetary base by $12.6 Trillion. This expansion of the monetary base (debasement of the currency) must eventually be reflected in the "money" prices of commodities, and my calc now says it will be by a factor of 13.
This makes predictions of gold to $10K not unreasonable. It's not even algebra; can Krugman do this calc?
A reasonable and useful analysis--thanks for sharing.
1. U.S. Debt---For credit analysis purposes it's better to start out with debt held by the public...($billions)
GAO Nov. Report: Total $11,898, of which $7,552 held by public and balance intra-governmental (i.e. borrowings from SS Trust Fund..we can look at that in analysis of unfunded SS liability) http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt.htm
When you start from that point you switch over to the accounting that everyone uses, and is the most helpful...Z.1 Flow of Funds Accounts of U.S. http://www.federalreserve.gov/releases/z1/Current/ go to table d.3 and see borrowings by sector...you will see the matching number for federal government debt..$7566.5 at 3Q
2. add $2309.1 state and local
3. now go to table L.3 to get the GSE debt portion of "domestic financial sectors"--GSE issues $2,800.5, plus GSE Pools $5299.7 = $8,100.2.
4. Unfunded Social Security Benefits $15,000 http://www.socialsecurity.gov/OACT/TR/2009/IV_LRest.html#254423 (Table IV.B6) The assets of the SS trust Fund , $2,200 are invested in US Treasuries (III.A)
5. Back to the z.1, d.3. add liabilities of financial sector, implicitly guaranteed.. $16,065.3less GSE debt above = $7965.1
6. Add $2,100 debt of Federal Reserve
7. Add Broker-dealer debt not included above (L.129) $1,876.2 (implicit guarantee)
8. Add liabilities of banking sector not included above (L.205,204) $8,158 + 906.1 =9064.1 (implicit federal guarantee)
9. Add Repos and Commercial paper of financial system (L.207, 208) 1338.0, less Fed 68.9, plus 699.6 =$1,968.7
Take any total of the above and plug it into Roubini's spreadsheet of statistics of countries which have experienced financial crisies (Bailouts or Bailins? http://bookstore.piie.com/book-store/378.html pdf form is free) : Chapter 2, pages 28 et seq..."Crisis Countries' Aggregate Balance Sheet Vulnerabilities",
and you will see that the U.S. situation today is worse than most countries which have experienced catastrophic financial crises (except for the single metric of borrowings in foreign currency)
The GDP data can be retrieved at
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&FirstY...
The BOP data for U.S.
http://www.bea.gov/international/index.htm#bop
Have fun!...we're broke by any conventional measure
When attempting to deal with these issues I always use mirrors, wear my Captain Video Decoder Ring, dress appropriately:
http://www.slick-net.com/space/box/sptoys/sc1952a.jpg
Accounting like that is personal torture.
The problem is solved by turning off the phone and sharing a bottle of Jack Daniels with yourself.
Continue the above until it goes away.
Then call AAA to be towed away. Turn on phone for that.
There's certainly fewer of them. Let's hope they aren't armed.
Lol, of course they aren't armed... their poor bodyguards are. But perhaps you should also highlight what percentage of the income is received by the top 10%, then the percentage of total wages by the top 25%. I bet percentages are rather similar.
duh.
Ohhhh and as for corporations? Why not force them to spend those political campaign ad contributions on taxes instead? Oh wait, it doesn't matter that our supreme court is also bought and paid for....
Who are you fighting for?
"After forcibly deporting a large fraction of the House of Representatives and permanently dissolving the Senate ..." I thought I was in heaven for a minute until the Devil (The Fed) broke through the gates with C4.
I would say you still need to takeover the assets of all twelve CB's, covert the NY Reserve into a homeless shelter, and use the hidden assets to pay off the debt.
I'll take Adrian Peterson.
Oh, I'm in the wrong room. I thought this was a Wells Fargo piece.
What the democratic congress might have done in 2006 to defund the Iraq war was pass new social spending bills, and cap the budget, with the intended effect of slimming down the bloated MIC. No one can open the books on DOD, black contracts and all, so we have to starve the beast, to paraphrase Grover Norquist.
Then we should implement a VAT. This will accomplish two things, drive the consumer back into the closet, and boost savings, and it will cause states which already have draconian sales taxes to ease up a bit. Each year we trim the budget, we automatically reduce the VAT which encourages greater spending. Rather than allowing the states to raise sales tax we encourage a consumer/corporate tax rate, which tracks the percent of profit a company makes, relative to the revenue it generates.
Medicare isn't the problem most believe it is, because as you get older your demand on the system actually decreases. We reinstitute the 'death panels', and we give free healthcare to all Republicans, because they thought of the idea! Additionally there would be a voter responsibility tax, which would impose a tax penalty for voting for any candidate who blows up the budget. And additionally those who voted for Bush twice, would have to do community service.
Social Security is bloated with entitlements, most of which can be removed without harming retiree benefits. Third the Congress should take a blood oath not to touch those retiree benefits, and Treasury should announce a plan to defend the dollar at something like x-25%.
That would provide a soft landing for the dollar, a controlled deflationary crash, but it would also make that debt look a bit more ominous, unless some sort of mark to market sleight of hand is done on the bond principle. (hey this is fantasy accounting, right?)
This is why most people don't like math.
Geez..
Thank you comrades "Lenin, Congress & White House" for our happy childhood !
Why don't we create jobs and revenue at the same time with the Tariff? An American tradition, 1792-1970. Free Trade is a newfangled boondoogle, that doesn't work. We don't even recoup enough from our rock bottom tariffs to pay for the infrastructure importers use to truck in all their COSCO containers into Long Beach and all the Truck Traffic that create more potholes than a wing of B-52s dropping Cluster Bombs.
Germany has tariffs up the wazoo, but still is a net exporter. So is China.
Cutting spending back to year 2000 levels would be a good start. I can not think of any spending increases in the last ten years that I will miss if eliminated.
We don't need no Fed Reserve Notes .....
We don't need no Account Controls .....
No dark sarcasm in the blog room .....
Bankers leave us in our homes .....
Hey bankers! Leave us in our homes .....
All in all you're just a nother leech on us all.
Those numbers show that we are passed the point were real world accounting will help fix the budget. Time to call Weil, Gotshal to do a Chapter 11.