Re: The actual US defict....... (into the trillions last year, entirely fatal, US GAO)

On Jan 7, 7:46 pm, RogerDodger <n...@xxxxxxxxxxxx> wrote:
On Sat, 5 Jan 2008 21:52:39 -0800 (PST), Lysander

<lysan...@xxxxxxxxxxx> wrote:
On Jan 2, 3:53 pm, RogerDodger <n...@xxxxxxxxxxxx> wrote:
On Tue, 1 Jan 2008 15:27:50 -0800 (PST), Lysander

<lysan...@xxxxxxxxxxx> wrote:
On Dec 29 2007, 3:02 am, RogerDodger <n...@xxxxxxxxxxxx> wrote:
On Sun, 23 Dec 2007 15:56:04 -0800 (PST), Lysander



The cash flow cost of paying down these obligations

Do we want to pay them down? The Federal debt is not like personal
debt. The government can not go bankrupt. Is the cost of paying down
the debt worth the benefit? How much debt is retired due to bonds
maturing that in Fed possesion?

Um ... Nobody said a single thing about paying down the "Federal
debt", dummy.

This is a major portion of the federal debt. The biggest contributor
is the special bonds owed to Social Security.

You want your Medicare benefits
don't you?


No I don't. If Medicare is still around when I am 65, I will be forced
into inferior government provided benefits instead of the excellent
benefits my company would pay as part of my retirement package. I
would much prefer my superior private insurance that is given to me as
a benefit. Companies end this better insurance because the government
entitles you to insurance at 65. I don't want it, I want the insurance
I have now.

What CBO, and GAO, the SS Trustees, etc., are all saying is that the
cash flow cost of paying accrued SS, Medicare and Medicaid benefits
will rise by 6 points of GDP by 2030.

As such a well trained economist, you *are* aware that these spending
programs are paid for with cash flow from tax revenue, right???


You left out and proceeds from bond sales to cover the deficit.


For those who are innumerate, that's 1.9 points of GDP for SS, 1.2
points for Medicare HI, 1.6 for Medicare SMI, and more than a point
for Medicaid.


The link does not answer the important question. WHAT IS THE
ASSUMPTION ABOUT THE GROWTH OF INFLATION? WHAT IS THE ASSUMPTION AS TO
THE GROWTH OF GDP? Is this today's GDP. If so it means nothing.


What assumptions are being made as to the
growth of GDP over the next 22 years?

Gosh, golly, have you clicked on the link to the GAO report giving
this very information? Here it is for you for the third time:


I clicked on the link. It is very non technical and does not give this
information. What is it? If it is there post a quotation from it.


As such a well trained economist, are you incapable of reading the
"Index of Tables" to find the one labelled as answering your question?


I can not read what is not there.
These are standard accounting reports and I could not find ANY
discussion of percentage of GDP in the table of contents.

If you had read the report you would see that these are GAAP reports
and have no discussion of GDP at all in them.


You are trying to apply simple math. to a complex situation that
has many variables. It didn't work for Malthus and it
will not work in this case either.

Malthus used Monte Carlo techniques? ;-)


You still do not understand the argument. There is no Monte Carlo
study for GDP growth nor inflation growth. Inflation is an unit root
process. So any numbers you give about what percentage of GDP this is
bunk unless you have the GDP growth right. The future liability of SS
depends strongly on inflation. That is why you don't understand what
the report you cite says. The report shows they only account for what
is CURRENTLY DUE AND PAYABLE in SS and unemployment. Not the entire
future liability. You obviously have not read the link. It says
nothing about GDP and says your premise is false.

http://www.gao.gov/financial/fy2007/notesfinstatement.pdf
These financial statements were prepared using U.S. Generally Accepted
Accounting Principles (GAAP),
primarily based on Statements of Federal Financial Accounting
Standards (SFFAS). Under these principles:
* Expenses are generally recognized when incurred except that the
costs of social insurance programs including
Social Security, Medicare, Railroad Retirement, Black Lung, and
Unemployment Insurance are recognized only
for amounts currently due and payable.

Note even in these reports SS, Medicare, RR retirement, Blank Lung,
and UI are accounted for JUST LIKE A CORPORATION WOULD ACCOUNT FOR
PENSIONS. The PV of future liability is NOT subtracted from income.
The only cost recognized are cost that have been earned by the
beneficiaries.

You are saying here that the SS actuaries use Monte Carlo simulations
without any variables. ;-)


No I am saying that if in order to get the PV of future payments of SS
you need to ACCURATELY predict inflation because of Cost Of Living
Adjustments. You can't do that it is an unit root process.

Hey, I asked you about Monte Carlo techniques before and you snipped
that too. I don't think you know what they are either.


Monte Carlo techniques have nothing to do with the problem that
inflation determines how much SS pays and inflation is an unit root
process!!


It's fun watching people who posture and patronize others as experts
show *themselves* up as the dufuses they are. Nobody else ever has to
show them up. They show themselves up every time.


The only dufuss here is you. You post a link that you claim supports
your argument and it has no mention of GDP in it. Furthermore, it
shows SS, Medicare, and a few others are being accounted for on more
of cash basis when you claim this is an accrual measure.

You know nothing about accounting and were dead wrong that the PV of
pension liability is subtracted from income. For one thing, other
comprehensive income is reported AFTER net income.

(on current
law that requires an income tax increase across the board, both
individuals an businesses, of 55%). That's just of for Social Security
and Medicare.

Again what inflation rate and what growth rate are being assumed here.

(<g> the crowd whispers: "click on the link instead of cutting it and
you will learn ... click on the link instead of cutting it and you
will learn..." <g> )


Translation. He is clueless.

I am little easier about assuming constant GDP growth. Growth will
raise revenue without raising taxes. I am not convinced any assumption
about inflation is right. The series is a random walk. Seignorage
could be a big issue.

Bwah! The cash flow cost of accrued retiree liabilties is driven to a
random walk. "Seignorage could be a big issue." !!! ROTFL.


Complete misunderstand. Are you aware since Reagan SS has been tied to
COLA?


Now, if as a well-trained economist you know what it MEANS, you can
give us ....

1) A credible estimate of the amount of seignorage's contribution to
total federal revenue (hint: you can find it on the Fed's web site),
then

I don't believe the Fed has an estimate of what seignorage adds to
revenue on their website. I don't have time to look at either. To my
knowledge seignorage is about 3% of revenue but that LARGELY depends
on the inflation rate. Over the 1970's it was much higher than the
1990's. The key is to predict either you have to predict inflation
accurately.

2) Compare that to the 6 more points of GDP needed to cover retiree
and medical benefits circa 2030, then...


Again, current GDP or GDP in 2030? What is your assumption about
growth?

3) From the scale of the two numbers relative to each other, determine
whether seignorage REALLY COULD be a "big issue" relative to those 6
points of GDP.


You don't get it. Inflation raises SS payments and raises tax revenue.
Here we go again. Silly Malthusian assumptions. Variable X is growing
at y% today so it will will grow at y% forever. That is the problem
with this kind of math. The situation is much too complex to take
todays information and assuming everything will grow constantly.


I could give this as a freshman econ 101 homework assignment and get
good empirical dollar-amount answers from the whole class.


Could *you* give us one?


No I can not because inflation is a unit root process. The liability
of SS is tied to the rate of inflation. Any thing you taught that
class that gives them an empirical estimate would be bunk and
significantly hinder their economic education because you would be
teaching them to think like accountants and NOT economist.

Inflation raises tax revenues as well. Are their
any assumptions about GDP growth or inflation in these numbers.

Gee, what do ya think?


What are they? They are not in the link. You have no clue.



I realize the
conservatism principle exist in accounting but as an economist, I am
not convinced over estimating liabilities is any better than
underestimating them.

So, as an economist, you believe that estimating liabilities at $0 is
better than possibly overstating them with a best estimate.


If that best estimate is severally biased and likely to be bunk I do
not see it is better than 0.

Do you apply this belief to private sector accounting as well?


Private sector accounting is much easier. You do not have future
payments linked to inflation when they are accrued.


Firms are costly
adding adjustments to service cost when conditions change. I do not
believe you know how pensions are accounted for today.

The actuaries of SS, Medicare, the military pension system

You are still too dense to understand that the actuaries ARE ONLY THE
FIRST STEP!!! Accounting for pensions is much more complicated than
that. The service cost is only the beginning. You have no idea how
pensions have been accounted for since 2005.


It's tough being the actuaries of SS, Medicare, the military pension
system.


Actuaries are only the first step.



Oh, gosh, the SS Trustees and actuaries really know *so much less*
about projecting SS costs than you do.


Oh course it is the government they must be right.

Inflation is a "unit root process". Wow. The idea probably never
occurred to them. Will that have as big effect as seignorage?? ;-)


I highly doubt it has. The information you post is made by
accountants. Most of which can not explain what a unit process is.
Accountants like nice little formulas and often do not have the tools
to analyze complex processes.

You can not predict a unit root process.

Well, so much for monetarism! Inflation can't be predicted from the
central bank monetary policy. Burn all my old textbooks!


What are you talking about? Monetarisms basis is precisely that the
Fed is bad at predicting cycles because of information lags. Friedman
and other Monetarist expressly argue that targeting inflation is the
wrong policy. Measuring what inflation is today and predicting what it
will be in 30 years are too different things. I suggest you read those
old textbooks before you burn. Friedman says very clearly that
problems in accurately forecasting is EXACTLY why fixed monetary rules
are necessary. We can influence the business cycle but because we can
not accurately forecast inflation, UE, etc. we often implement the
policy too late. The lack of accurate forecast is precisely why we
have a recognition and why the Fed acts pro cyclically so often. You
are very confused as to even what Monetarism is.

Yet while private firms are required to report these liablities on the
books with their present value charged against income, the government
ignores them.

No their present value of the liability is not counted against income.

God you are a posturing dufus.

OF COURSE the present value of an entire liability isn't counted
against current income. The liability is a *balance **** item. The
change in the amount of the liablity is an *income statement* item.


You are trying to make it sound like you are not wrong and you are.
The present value of all future obligations does not show up ANYWHERE
in the books. Earned benefits are only the first part in calculating
pension expense.


The present value of service cost
is just a beginning.

http://www.actuary.org/pdf/pension/fundamentals_0704.pdf

Hey, you *can* click on a link when you want to!

Pension expense is counted against income and IT IS NOT THE PRESENT
VALUE OF THE LIABILITY. Pension expense is a very complex process that
involves calculating service cost and service years. Firms subtract
gains from the pension fund for the service cost, they add losses. It
is a multi step calculation to get to pension expense. It is not
simply the present value of the liability.

http://www.nysscpa.org/cpajournal/2006/1106/essentials/p22.htm

And it looks like you can go Google-mining into unknown fields too,
when you want.

Which is when you want to change the subject. ;-)



"Pension Expense

Accounting for pension plans requires the measurement of pension cost
and then the allocation of such cost to appropriate time periods. The
determination of pension cost is a complicated task because it is
calculated by netting five factors:

* Service cost;
* Interest on the projected benefit obligation;
* Expected return on plan assets;
* Amortization of prior service cost; and
* Effects of gains and losses.

The income statement reports the net amount as pension expense. Each
of the components is disclosed in the footnotes accompanying the
financial statements."

Furthermore in pension expense it is ONLY EARNED PENSION EXPENSE THAT
IS COUNTED not future expenses.



That really explains how entities with really big pension liabilities
like General Motors, IBM, and the Federal Government can best carry
them at exactly $0 ... to avoid misleading anyone!


0 may be just as good as an equally bunk number.


"The Fiscal Year 2007 Financial Report of the United States
Government"http://www.gao.gov/financial/fy2007financialreport.html

.. and finding your answers right there!

SPECIFICALLY, look up the "Low Cost Scenario" for SS and Medicare
costs and all of its **most favorable cost-reducing projections** for
inflation, GDP growth, wage growth, etc, then tell us the number it
provides and you see there for Trillions of Dollars Accrued Liability.



Note the report is saying something similar to what I am.

"Economic and Demographic Assumptions. The Boards of Trustees4 of the
OASDI and Medicare Trust Funds
provide in their annual reports to Congress short-range (10-year) and
long-range (75-year) actuarial estimates of
each trust fund. Because of the inherent uncertainty in estimates for
75 years into the future, the Boards use three
alternative sets of economic and demographic assumptions to show a
range of possibilities. The economic and
demographic assumptions used for the most recent set of intermediate
projections for Social Security and Medicare
are shown in the "Social Security" and "Medicare" sections of Note 22--
Social Insurance."

"Nominal Income and Expenditures. Chart 2 shows historical values and
actuarial estimates of combined
OASDI annual income (excluding interest) and expenditures for
1970-2081 in nominal dollars. The estimates are for
the open-group population. That is, the estimates include taxes paid
from, and on behalf of, workers who will enter
covered employment during the period, as well as those already in
covered employment at the beginning of that
period. These estimates also include scheduled benefit payments made
to, and on behalf of, such workers during that
period. Note that expenditure projections in Chart 2 and subsequent
charts are based on current-law benefit
formulas, regardless of whether the income and assets are available to
finance them."

These are not adjust for inflation.

There is also no explanation of how they they determine the growth of
GDP. They only posted things as a percentage of GDP. I noticed these
are in nominal terms as well so they try to avoid predicting
inflation. There is little explanation of methods of how they get
these numbers just a posting of the numbers with graphs. Nothing about
how they got the numbers. If I am wrong point it out to me.



Tell us the errors that the actuaries, economists, accountants at SS,
Medicare, CBO, GAO, etc have all made in thinking that cash flow needs
of the gov't will go up 6 points of GDP by circa 2030.


It is hard to do when they do not tell you have they got the numbers.
That is the problem. You are taking numbers as fact when there is no
explanation as to how they get them.


"several key points:

"Under any plausible scenario, the federal budget is on an
unsustainable path over the long term... under current law, federal
spending on Medicare and Medicaid measured as a percentage of GDP will
rise from 4 percent today to 12 percent in 2050..." etc., etc.,


Again, how do they get the numbers. Why is it unsustainable. It is
unsustainable at current tax rates? Why does Medicare rising to 12%,
if correct, imply that it would cause the debt payments to be greater
than GDP?

you can stop
pretending to be any kind or economist or pseudo CPA -- you'll just
close the coffin lid of credibility on yourself, slide your box into
the hole and pull all the dirt on down.


This coming from the person who wanted to discuss who accrual
accounting makes a difference from cash basis yet he has no clue as to
how pensions are accounted for by corporations. This is also the
person who believes Monetarist argue that we can accurately prediction
inflation. The Monetarist argument is simply we can not predict well
enough therefore we find timing on policies are off so it is better to
keep constant monetary growth rates.

Inflation and GDP growth can reduce > $50 trillion present value of
liabilities to a best estimate of $0. Sure. ;-)


0 might very well be as good as an estimate as something that is
heavily over inflated. Say the real value is 500 billion. The estimate
is 1 trillion. 0 is just as far off as 1 trillion is. Which is best
neither, they are both way off.

And if you come back -- don't forget to tell us the value of
seingorage in percentage-of-GDP terms!

It depends on the inflation rate. My book with the exact estimates in
it is packed away somewhere. IIRC, Seignorage accounts for about 3%
revenue.
.