This page has been archived and commenting is disabled.
Mike Pento: Debt Ceiling Misconception and Deception
Latest from Mike Pento at Euro Pacific Capital -- Chris
The debt ceiling debate that has dominated the headlines over the past month has been thoroughly infused with a string of unfortunate misconceptions and a number of blatant deceptions. As a result, the entire process has been mostly hot air. While a recitation of all the errors would be better attempted by a novelist rather than a weekly columnist, I’ll offer my short list.
After having failed utterly to warn investors of the dangers associated with the toxic debt of entities like Enron, Fannie Mae, Freddie Mac, and AIG, as well as the perils of investing in mortgage-backed securities and sovereign debt of various bankrupt countries, the credit ratings agencies (CRAs) have now apparently decided to be more vigilant. A key feature of this repentance may have been its conspicuous warnings that the U.S. could have its debt rating lowered if Washington failed to make progress on its fiscal imbalances. But then, just in case anyone was getting the impression that these rating agencies actually cared about fiscal prudence, Moody’s suggested this week that its concerns would be lessened if Washington were to make a deal on the debt ceiling or if it would simply eliminate its self-imposed statutory debt limit altogether. In other words, Moody’s believes that our nation’s problems are more a function of squabbling politicians rather than a chronic, unresolved, problem of borrowing more than we can ever hope to repay.
With or without a deal, the CRAs should have already lowered their debt ratings on the $14.3 trillion of U.S. debt. In fact the rating should be lowered again if the debt ceiling IS raised. And it should be lowered still further if we eliminated the debt ceiling altogether. To lower the rating because the limit is NOT raised is like cutting the FICO score of a homeless person because he is denied a home equity loan.
Republicans are making another misconception about the debt ceiling debate if they believe they can dramatically cut government spending without hurting the economy in the short term. In a recent poll from Pew Research Center for the People and the Press showed 53% of G.O.P. and 65% of Tea Party members said there would be no economic crisis resulting from not raising the debt ceiling.
They argue that leaving money in the private sector is better for an economy than sending the money to Washington to be spent by government. That much is true. But a very large portion of current government spending does not come from taxing or borrowing, but from printed money courtesy of the Fed. If the Fed stops printing, inflation and consumption are sure to fall. While this is certainly necessary in the long run, it will be nevertheless devastating in the near term.
Over the last decade and a half our economy has floated up on a succession of asset bubbles, all made possible by the Fed. Our central bank lowers borrowing costs far below market levels. Commercial banks then expand the money supply by making goofy loans to the government or to the private sector; mostly to inflate asset prices. As a consequence, debt levels and asset values soar. Without fail, asset prices and debt levels soon become intractable and the Fed and commercial banks are forced to cut off the monetary spigot, either on their own volition or because the demand for money plummets. The economy is forced to deleverage and consumers are forced to sell assets and pay down debt. Recession ensues. That’s exactly what would happen once $1.5 trillion worth of austerity suddenly crashes into the economy come August 2nd. Republicans would not survive the political fallout.
And then there is the deception that comes courtesy of the Democrats who believe we need to raise taxes in order to balance our budget. The American economy produces $15 trillion in GDP per annum but has $115 trillion in unfunded liabilities. With a hole like that, no amount of taxes could balance the budget. Raising revenue from the 14% of GDP, as it is today, to the 20% it was in 2000 would barely make a dent toward funding our Social Security and Medicare liabilities. Therefore, we need to cut entitlement spending dramatically. But the Democrats refuse to face the obvious facts.
With the Tea Party gaining traction in Congress, and causing nightmares for incumbents, Republicans have little incentive to raise the debt ceiling (although they raised it 7 times under George W. Bush). Democrats aren’t going to reduce entitlements without raising taxes on “the rich” and Republicans aren’t going to raise taxes when the unemployment rate is 9.2%. There’s your stalemate and anyone expecting a significant deal to cut more than $4 trillion is spending by the August 2nd deadline will be severely disappointed. Although there has been some movement by the so-called “Gang of Six” centrist senators in recent days, a real deal may be more unlikely than most people think. And even if a much smaller deal of appeasement can be reached in time, the credit rating agencies may follow through on their promise to downgrade our sovereign debt. The fallout from such a downgrade of U.S. debt will prove quite damaging to Treasury prices. But an even worse outcome will occur if we continue to raise the debt ceiling without significant spending cuts, and then receive the real debt downgrade from our foreign creditors.
In my opinion, the best news for the long term future of this nation is the Republican “Cut, Cap and Balance” plan that just passed the House, which should also include a limit on government spending as a percentage of the economy. It now heads to a much harder hurdle in the Democrat controlled Senate, and then if it passes that, to a certain veto from President Obama. At least something so promising got to the table at all. However, I think the country needs some more tastes of brutal reality before such bitter medicine has a chance of going down.
-30-
»
- advertisements -
well said Lunatic, if only politicians were as sane as you
but you do mention the policy resolution to end this Washington fiasco in mentioning your paycheck and the tax take out of it
Stop Paying Your Taxes
Zero Tax = Zero Govt = Zero Problems
then we don't have to suffer another Mike Pento article describing the mascinations and terrible quandry the lunatics in the asylum have got themselves into... who gives a crap what these worthless tossers think
Stop paying their wages, shut the fuckers up and shut Govt down. Policy resolution reached, problem solved, simple as
"Stop Paying Your Taxes" LOL
For starters you would have the whole weight of the state down on you ... the upside being that you would end up in a tax-funded gaol getting a free ride; further:
Zero Tax = Zero Roads = you walk everywhere.
Zero Tax = Zero Laws = you can get killed by anyone who wants to kill you.
Zero Tax = Zero Govt = you are totally on your own, should your health fail, or anything else go wrong.
No rational person would deny that governments have become too big, too corrupt and too intrusive, but it is wholly irrational to want to dispose of governments completely.
It is notable that the arch-Libertarian, Ron Paul (and his son now) has lived off the teat of government for all of his life, first as a recipient of government-funded health care subsidy, then later as politician paid for for by taxes.
There was a recent survey of people who, by and large, did not believe that they actually got government assistance, e.g. via education, health care and road-building.
Zero Tax = Zero Roads = you walk everywhere.
So, what, there were no roads before income tax?
Roads can be built, & maintained on a user-pays basis. Furthermore, in the past, people used to chip in and either help build or help pay for the building of roads in their locale because it brought in business and made logistics easier. And they built according to their needs, not because Eisenhower got inspired by Nazi central-planning and decided a Federal Interstate system would make trundling nukes around easier.
Zero Tax = Zero Laws = you can get killed by anyone who wants to kill you.
So there was no law enforcement before income tax? No prohibition against murder?
Zero Tax = Zero Govt = you are totally on your own, should your health fail, or anything else go wrong.
So there were no doctors before income tax? No insurance companies?
Like most of the sheep, you've been brainwashed by government propaganda into believing that services arrogated by, and then monopolised by government can only be provided by government. Do some research - there's plenty of information out there on alternative systems.
Damn, I hate it when someone won't get off the fence and say what they really mean.
It's actually rather simple, but it will be painful and the pols don't want to face reality.
We are in a balance sheet recession where asset values have been clobbered down from unrealistic bubble-levels. In the period 1998-2007 we were living better by monetizing our assets (first dotcom stocks, then real estate) and spending the money on current consumption. Since the bubble burst we are trying to maintain unrealistic consumption levels through government deficit spending. We're spending about 111% of what we produce (GDP), the extra 11% being the federal deficit which is running up debt by borrowing economic activity from the future. Of course that means the future will be poorer since there has been no Keynesian multiplier, nor will there be in this situation.
The simple answer is 2-fold:
1. Wind down the deficit over a relatively short period of time, say 3 years at about $500B per year, at least 80% by spending cuts. This will reduce nominal GDP by about 10% but that just means nominal GDP will also be close to REAL GDP. I'm not talking CPI, I'm talking what we actually produce compared to what we consume... tho, the leakage goes to both prices and the trade deficit.
2. Meanwhile, the USG has to stop doing everything in its power to discourage economic activity and esp. growth of small business, which has always been the main source of employment growth.
Than, as we stop increasing the debt and start getting our balance sheet in order, business (unfettered by all the political idiocy) will start to come back... slowly at first, but eventually it will build momentum.
Very simple, but the pols, having spent generations telling us they can control the economy, won't take the heat for that initial reduction in GDP, probably can't even recognize the reality that's staring them in the face. So the next 10-20 years look like a replay of Japan 1990-date, maybe worse.
I'm not disagreeing with you, but any such drastic policy must include the big 4 - SS, medicare, medicaid, defense. I would propose a 20% cut in everything once a year for two year. Nothing is excluded, SS benefits, federal salaries, grants to States, farm subsidies, etc. Everyone shares the pain, no need to go through the endless wrangling of who gets cut and who is sacrosanct.
...and then we can get our heads out of the sand regarding our energy problems and how cheap oil has been the basis for our entire economy for decades. The hits WILL just keep on coming until there is some real honesty in Washington to face up to reality.
i cant pay you Tuesday for that hamburger i ate yesterday
<sarc contineud> Okay, Then how about this. The Tea Party Finishes off the battle of quebec. Palin, Kid Rock and michigan could take canada militarily. China forgives a whole bunch of USTs and they get mining rights.
Who exactly would complain? The brits are doing fine. And this would keep thier Federal reserve shares solvent.
<sarc>
I have to say I am still mystified as to why everyone seems to believe that there is a connection between Social Security
and the deficit. Social Security has not contributed one cent to the deficit. It is funded by payroll taxes and is solvent at least until 2025 (or there abouts). It's solvency can easily be extended by increasing payroll subject to the tax.
The true problem is the bloated military spending which has no funding and will continue to grow exponentially until the rapture ( or what ever you believe the end to be).
What is really going on is the desire to loot Social Security to pay for the bailout of Wall Street and fund endless wars!
There is $14 trillion in UST debt. $9 trillion is debt held by the public (and the Fed). $5 trillion is intra-governmental debt that different agencies in the government have borrowed from Social Security. The SSTF's listed "surplus" is "invested" in this intra-governmental debt. Since the government overall and the SSTF are both cash flow negative, in order to raise cash, the UST must issue additional debt to pay off the internal debt owed to SS. The SSTF surplus was spent as it came in. They've already looted the system. The 2025 number is when the GAO estimates that the intra-governmental bonds owed the SSTF exhuast.
And this cash flow negative situation in the SSTF is not going to get better. This was the first year the Baby Boomer generation was eligible for benefits (those born in 1945). There's an even bigger surge of Boomers coming.
I have an idea. Why don't they add a "military intervention tax" on our paychecks? Then at least they are up front with it. Then people, and I mean everyone would get involved (pissed off), which is what we want. Right? Pardon the sacrasm.
gees man please go study the fundamentals of finance.
PRESENT VALUE of money and ACCRUAL accounting.
Just because until recently cash inflows to SS > cash outflows does not mean you are solvent.
If insurance companies were run like that they'd all be bankrupt (AIG is a good example, they were using repos, issuings CDS's and using 'cashflow accounting').
You have to present value your obligations and present value your assets / income.
By looking at cashflows only you are using CURRENT income (working serfs) to fund PAST obligations (retired seniors), while ignoring the fact that the FUTURE liability of the CURRENT working serfs is not provided for.
And no, there are no assets in SS fund. Just pink bits of empty promises.
The reason Social Security is always being attacted is that that is one place where there is still some money to loot. So everyone is hollering about what a drag on the economy it is and how we need to cut back benefits and divert the revenue stream to the truly needy, the top 0.1%. You never hear about cutting the military, for instance or withdrawing from whatever is the latest tally of the number of wars we are fighting. Why? Because that and interest income on the national debt are the main sources of revenue for the top 0.1%. So all of these brainwashed conservatives want to cut back or even end social security. That's because they are currently riding high in the saddle and think there will never be a time where they or their children will need it. Yet other developed countries that are not wasting all their money on supporting their own top 0.1% through military adventures and other scams do provide these two supports for their aging populations. Here in the US, if you lose your job, you end up paying $10000 a year or (much) more for basic family medical care. For the life of me, I can't understand why they want to turn this country into a banana republic with a small extremely wealthy minority and everyone else dirt poor. Why are these little petite bourgeousie conservatives such lap dogs--in spite of their guns and ammo chest thumping--for their masters?
It must be a comfort to substitute an ideology for actual thinking. Saves so much time. SS does not have money to loot. As of last year, it was slightly cashflow negative. Do you understand what that means (I ask because of the general ignorance of your post)? It means that money from other sources is used to fill the gap.
As far as your lumping the 0.1% with evil conservatives, tell me what the political leanings are of Warren Buffett and Bill Gates, two of the richest men on Earth. And look up a list of the top 10 wealthiest members of Congress. 5 or 6 of them are Democrats.
I do agree with you on one thing, however, and that is to bring all the boys and girls in the military home. And yet no leaders in either party ever talks about that.
You need to finally get over Bernie Sanders. He's a tool.
Social Security is now and for the foreseeable future Pay-as-you-go, and the "Trust Fund" consists of non-negotiable US Treasury bonds that the Social Security Admin bought when it was running a cash surplus (up until a few years ago). We are now permanently in a situation where SS outlays exceed receipts, so in order to pay full benefits the Social Security Admin has to get the Treasury to redeem some of those bonds. The Treasury can only do so out of current revenues (taxes or other borrowing).
Due to demographics, the amount be redeemed will grow each year for the next genetration.
So Social Security directly affects the deficit.
There's nothing in SS to loot, except if the UST refuses to honor those bonds.
Gee, nobody thought it was devastating when the government taxed and regulated half our manufacturing capacity completely out of existence, with lost jobs, lost homes, personal tragedies and all the rest.
And now we're supposed to be worried about a few Tax Pigs getting cut off?!
They're parasites! Those of us who've already lived through it aren't going to feel sorry for them. Fuck them. They caused this.
yea, reduction in projected increases is still increases. and as soon as they cap,
cut, duck and tuck the country will be ready for qe3 these crooks run circles round the
people and the msm. fiat asshat abyss, here we come.
Just take the U.S. defence budget and slash it by 30% then redeploy the soldiers across the U.S./Mexico border and watch how rapidly you move from deficit to surplus. It's THAT simple.
I like that idea and it would only take a small number (percentage) of the redeployed troops to do that. Whoops, what about all those drug profits for the banks and the CIA? How can we keep that deal going? maybe set up check points? /sarc
Uh, no.
You could eliminate the entire defense budget ($744 billion) and not even cover half of this years deficit ($1.5 trillion).
The only way to balance the budget is to kick all the welfare parasites (including corporate and banking parasites) off the dole, and start rewarding citizens who actually produce things by allowing them to keep most of what they earn.
How's this for a radical notion: we reward success and punish failure rather than punishing success and subsidizing failure?
As a further no-no: If we eliminated the Fed cartel's corner on printing into existence, irredeemable fiat currencies, as backed by legal tender laws and returned to competition in currencies, then the CRA's smoke and mirror supporting act would be exposed as the sham that it is. Gold and silver as currencies have the power to do two things; a) eliminate the FED and, b) restrain government spending and size.
Problems galore in the interim, I know, but at least they would contribute to a practical means to an inevitable end.
So, if doing one thing won't solve all the world's problems including cold sores, then one must do nothing.
How about a big smorgasbord of ALL suggestions and take 'em all to the max.
Shared sacrifice and all that.
Don't eliminate things because the one thing alone doesn't fix the problem.
Exactly Rocky. Nobody wants to share in the pain. It is always someone else's responsibility. The POS Congress and POTUS will do nothing to improve the situation because of "politics", which simply means: What can I get out of this?
+1
Honestly, One of my math professors was pissed off because he had to do the topical thing of teaching probablity to a bunch of state school, cornfed engineers. He says the way to figure out how any gambilng game works is to walk in and make every bet possible at once. whether it is a single game or every game in the casino. See what percentage of your money you walk away with.
Most likely your math professor was in the wrong profession if he had such an attitude. Most likely he would have been happier as a hair dresser or a pimp.
However, point taken. Calculating something does not substitute for experiencing something ...
... and clearly the math professor's suggestion would teach the wrong answer since house odds on payoffs would make the bettiing on every number yield the wrong conclusion. It would also not work for multivariable games suc as blackjack and poker. I guess your math professor was pretty useless, with both a wrong hypotethis and a bad attitude.
he implied all the permutations of multivariable and multi stage games. I did not explain his position properly. He actually did teach us craps, since it had the best odds, something like 49.5%.
But to do that you gotta be a robot. The entire casino is designed (staff, table placement, announcements for "free buffet", etc) to take you off of that game, and at the same time hook in more rookies to the table.
Nobody gets rich gambling, and stays out of prison/has ... working legs,teeth.
Even easier: let's not grant them the triumph of winning over the concept.
It's not their place to punish nor reward anything, except maybe federal crimes, which should be few if not at legally declared war.
Just leave us alone and let us trade with commodity money instead of air/debt-money. We'll fix the economy. We'll create the jobs.
Even easier: just don't raise the debt limit. Let the gooberment live within it's means. Simple as that.
im quite surprised mr. pento finds any alternative spewed forth from the political geyser of crap to be promising. i wouldve expected a "too late for anything" theme.
And any "deal" they come up with will not make a difference. This $4 Trillion plan (all of them for that matter) do nothing but cut "increases in spending" and over the next decade and a half. This is just plain corruption and LYING to the American Public.
WHERE IS THE MSM???
Where is the MSM? Right where they always are; in the pocket of the Fed/bankster cartel.
Do a little research on Congressman Charles Lindberg and his testimony before Congress to the effect that the "money trust" behind the FRB used the New York Times syndicate to buy up editorial viewpoints across the nation--to make certain that people only heard the views that the banksters wanted them to hear. Worked pretty well, didn't it?
Lindberg also brought impeachment against FRB board member Paul Warburg (yes, those Warburgs) for conspiring to subvert the U.S. Constitution. The Red Shield gang still controls the Bank of England, the Fed, and numerous other central banks in Europe and the Americas.
Charles Lindbergh is one of my heros, SRS
The Warburgs after the Rothschilds were the most criminal banking family in the history of the world
This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill.
From now on, depressions will be scientifically created.
The financial system has been turned over to the Federal Reserve Board. That board administers the finance system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money.
- Charles A. Lindbergh
"With or without a deal, the CRAs should have already lowered their debt ratings on the $14.3 trillion of U.S. debt. In fact the rating should be lowered again if the debt ceiling IS raised. And it should be lowered still further if we eliminated the debt ceiling altogether. To lower the rating because the limit is NOT raised is like cutting the FICO score of a homeless person because he is denied a home equity loan."
Agreed. I've actually stated the exact same thing for a while now. And I've also stated that Standard & Poors is a joke of a rating agency by maintaining the US's AAA debt rating as the US's financial viability has clearly deteriorated tremendously for years now. But it's the same "extend and pretend" game that banksters and politicians always play.
Well documented. I have read and listened. It is logged in. A believer in PM's for many a year. Well invested.
If any of the credit ratings agencies were to downgrade US debt, they would be immediatley prosecuted for crimes commited leading up to 2008..
Yes, and it is an outrage that the ringleaders in the Credit Rating Agencies are not already serving 20 years-to-life hard time prison sentences.
Justice demands balls-to-the-walls prosecutions of Credit Rating Agencies, Countrywide, the mortgage industry, the appraisers,Freddie and Fannie, Citi and the big banksters, Goldman Sachs and other Wall Street banks, AIG, and federal co-conspirators at U.S. Treasury, SEC, OTS, Federal Reserve, especially FRBNY, and those members of Congress who aided and abetted the greatest financial crimes in U.S. history.
yes Tom the Taxpayer and to think you continued to fund the politicians through the mortgage fraud and sub-prime toxic implosion, you fully endorsed Washington with your own money while they fuked up US housing with sociaslist subsidies, you funded the miliatry-industrial complex and all the illegal murderous foreign wars, you even continued to sponsor DC as they bailed out the big dumb bankrupts of Wall Street and you still pay the bills that Geithner at The Treasury sends you
Yes, you pay your taxes... you are as fully responsible for funding Washington as all the parasitical sponsors who also fund politicians
the day you stop paying your taxes is the day you no longer endorse what is going on and are no longer responsible for what happens in that shithole called Govt ..until then you're fueling it and are responsible for it
Stop Paying Your Taxes
I am trying to figure you out sir. Is it acceptable in you view to just work enough to get all the tax goodies, and essentially have a negative tax bill?
Or does a person really have to go "My side of the mountian"
You forgot Obama.
I did not forget him. He is the president of the USA. But my question still stands for ZeroGov. Is it ethically acceptable in his framework to trick out the tax code for a negative tax rate? or Do we just have to zero it out?