Morning Report: FOMC minutes a nonevent 1/7/16

Markets are lower again after Chinese markets got slammed down 7% overnight. Bonds and MBS are up small.

Chinese shares fell 7% in the first 30 minutes of trading and the authorities suspended trading for the rest of the day. FWIW, George Soros is comparing what is going on in China with 2008. That probably isn’t far off, given they have a real estate bubble which seems to be bursting as well.

North Korea claimed to have detonated a hydrogen bomb, but the US has so far found no evidence they actually did.

In spite of all the volatility in the markets, we aren’t really seeing much of a bid under Treasuries, or the dollar for that matter. No big flight to safety trade. The market seems to be taking the view that any problems in China will remain contained and won’t affect the Fed’s policy of normalization. Remember, the Fed was going to hike rates in September and chose not to after the late summer sell-off, so overseas markets do matter to them.

The FOMC minutes were generally upbeat yesterday, with the Fed noting the continued improvement in the labor markets, nascent wage inflation, and strong consumer spending, especially autos. Worries included the stress in the high yield markets and weakness in overseas markets. The members are still divided over how much slack remains in the labor markets, and for some the decision to raise rates was a “close call.”  Bonds didn’t react to the release, although they were strong on the day to begin with.

Initial Jobless Claims fell to 277k from 287k the week before. Announced job cuts fell 28% according to outplacement firm Challenger, Gray and Christmas.

60 Responses

  1. Frist, again, Michigoose! You’re slowing down in your old age. 🙂

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  2. The largest fission bomb ever detonated was 500 megatons. I have not seen any estimates of what capacity this latest North Korean bomb was. I would not take anything NK says at face value since they lied about their first Bomb attempt which set a record as being the first failed detonation in world history.

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  3. Had Trump neutralized Bill Clonton?

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  4. Just heard Jeb Bush say that America’s role is to bring “peace and stability to the world.” Does anybody hear agree with that?

    His campaign, at least from the Hugh Hewitt interview I just heard, consists of repeating that he is not Donald Trump. He sounds completely emasculated and entitled. If Trump has him this discombobulated in the primary how’s he going to handle HRC in the general? Or Purin if he somehow managed to get elected?

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    • Good points all George.

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    • I am also not Donald Trump, which is another one of my campaign slogans for my “Kevin Willis for President” independent campaign. Also, if I’m elected, I’m not going to move with Washington or live in the Whitehouse, because that all sounds so tedious. Just a heads up.

      Jeb! has an amazing problem with entitlement and how he deals with it. When Bush debated Kerry in 2004, there were times when it looked like Bush wanted to punch him, saying: “I’m the president, dickless!” but he never came off like such a spoiled whiny rich kid the way Jeb! does. HRC would eat Jeb! for breakfast. And then spit him out. And everybody, even the establishment Republicans who hate Trump, can see that. It turns out that he is perhaps the worst of the candidates in terms of campaigning and debating, and right up there with Kasich and Santorum and so on in terms of electability.

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    • And, no, I’m sure there are plenty of New American Century folks who agree that it is America’s role to micromanage the entire planet towards a democratic capitalist Utopia and the American tax payers expense, but I doubt you’ll find many of them here. I, for one, don’t think that it’s America’s role to bring peace and stability to the world, and I really don’t think we can afford to do it the way most of the folks want to. I’d pick outrageous entitlement spending at home versus setting fire to money for no positive outcome abroad, because at least we might get the benefit of a new bridge to nowhere or a nice new lodge at the national park or what have you. Although I’d prefer less entitlement spending and the making of constant Orwellian war for “peace and stability”, if I had my way. Of all the candidates, Rand Paul is really the only one I’ve liked consistently (on this topic), although I’m sure it’s possible he’s said things I haven’t heard that I wouldn’t like. That Rand is a firecracker!

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      • KW:

        And, no, I’m sure there are plenty of New American Century folks who agree that it is America’s role to micromanage the entire planet towards a democratic capitalist Utopia and the American tax payers expense…

        While I understand that world peace and stability isn’t exactly a highly specific and crystal clear notion, I’m also pretty sure it doesn’t generally mean “micromanaging the entire planet towards a democratic capitalist utopia.” Certainly, in any event, I find it highly doubtful that that is what Bush meant by the phrase.

        BTW, As a totally pedantic aside (so skip this if pendantry annoys you) I always find it curious when people object to some government action and then note, as if it were the final kicker, that it would have to come at “the taxpayer’s expense”. Pretty much anything the government ever does that costs money is, by definition, done at the American taxpayer’s expense (notwithstanding Trump’s delusions about a Mexican funded Great Wall of Texas.) So unless the objection derives solely from the fact that it costs money at all, I never understand the point of noting the “at taxpayers expense” tautology. For example, would your view about it being the role of the US to “micromanage the entire planet towards a democratic capitalist utopia” change provided that it did so at the expense of some other country’s taxpayers? I’m thinking it is unlikely, so why mention the irrelevant and tautological fact about who will pay for it?

        It is also interesting to note that no one ever supports a government action while throwing in the equally tautological fact that it too would be done at the expense of the American taxpayer. I want to hear someone argue that “The government should absolutely be writing below-cost insurance at the expense of the American taxpayer!”

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      • @ScottC1: “I’m also pretty sure it doesn’t generally mean “micromanaging the entire planet towards a democratic capitalist utopia.” ”

        Or a democratic socialist utopia, depending on the party affiliation of the interventionist politician in question. In any case, even simply “ensuring world peace” is not America’s job, IMO, and I’d like to see us focus our attention at home, and if we’re going to waste a lot of the tax payers money, I’d at least prefer to see it wasted locally. 😉

        “Certainly, in any event, I find it highly doubtful that that is what Bush meant by the phrase.”

        Then he’s just engaged in magical thinking? Or he’s the one guy out of all the presidents we’ve ever had that can “ensure world peace”? He can’t handle himself in a debate, or even correctly interpret what Trump is saying and so responds incoherently to things Trump didn’t say . . . this is not the dude to ensure world peace. If ensuring world peace means anting in practical terms other than increasing the defense budget, I’m not sure what it is. I’d prefer we stick to ensuring the ability to defend America against foreign invaders.

        ” I always find it curious when people object to some government action and then note, as if it were the final kicker, that it would have to come at “the taxpayer’s expense”.”

        Meaning that if Jeb! Bush wants to use his own money to ensure world peace, I’m all for it. Generally, the use of “at the taxpayer’s expense” is a suggestion that money is wasted or not in the general public interest, thus why the heck is the general public paying for it? Of course, opinions vary on what is in the interest of the people, so different people will complain about being at the tax payers expense at different times.

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        • KW:

          In any case, even simply “ensuring world peace” is not America’s job,…

          As I said, I agree. But I do think a peaceful and stable world is, generally speaking, in America’s best interests. Do you disagree?

          IMO, and I’d like to see us focus our attention at home…

          I think a, perhaps the, primary job of the federal government is to secure the nation from foreign threats, and that pretty much requires some kind of engagement with the outside world. (We can of course debate just what that engagement ought to be.) We have plenty of other levels of government whose job it is to focus its attention on purely domestic issues. As Mark and I have recently discussed, I think one of the most nefarious consequences of the whole progressive project is the expectation produced in the minds of citizens that the fed should be responsible for solving everyone’s local, domestic problems.

          Then he’s just engaged in magical thinking?

          I suspect he is engaged in typical political rhetoric in his own not particularly competent way.

          Meaning that if Jeb! Bush wants to use his own money to ensure world peace, I’m all for it.

          Really? You are all for, say, boots on the ground in the ME in order to ensure a democratic capitalist utopia as long as taxpayers don’t bear the financial cost? I find that surprising. Certainly for most people the objection to foreign entanglements derives primarily from the expected (negative) consequences of those entanglements to US interests, not simply the financial cost to taxpayers.

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        • “But I do think a peaceful and stable world is, generally speaking, in America’s best interests. Do you disagree?”

          Of course it is! And so is the sun not going super-nova, and so would be everybody linking hands and loving one another, I’m just pretty sure we can’t make that happen. If you know it’s going to be cold in the winter, buy a coat. Don’t declare war on winter and starting wasting ammunition firing into the north wind.

          “Some kind of engagement” leaves a fairly wide swath of stuff on the table. Diplomacy, supporting allies against obvious aggressors, selling arms can all be positives. Deposing dictators and installing leaders we believe will be compliant may sound good in theory, but I think it’s ultimately a negative in practice, being more destructive to world peace and stability than promoting same. The same can be said of many domestic expenditures, to be sure. I don’t think Mark necessarily supports cradle-to-grave micromanagement of the populace, but, yes, I think many people on the left and in politics in general do nothing but engage in magical thinking. Obama just issued an executive order on guns that was nothing but magical thinking. The ACA should have been called the MACA: the Magical Affordable Care Act.

          “You are all for, say, boots on the ground in the ME in order to ensure a democratic capitalist utopia as long as taxpayers don’t bear the financial cost?”

          If Jeb! wants to waste his fortune, it’s a free country and he’s a free man (talking in the abstract, I’m sure the US Government would object to the hiring of mercenaries by citizens in order to overthrow middle eastern governments). The same way I’m all for Warren Buffet cutting a way bigger check to the IRS in order to ease his conscious about not getting taxed enough. Frankly, I think if Jeb! and others had to commit the entirety of their personal fortunes and sacred honors in the pursuit of a peaceful middle east, they’d become a lot more aware of the futility of that pursuit, at least as something being forced upon Middle Eastern culture from outside “imperialists”.

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        • KW:

          Of course it is!

          Great, we agree. And despite your snarky comparison of world peace to super novas as if nothing at all could possibly done about it, it seems you also agree that there are steps the US can take to attempt to make the world more peaceful and stable than it might otherwise be, since you say:

          Diplomacy, supporting allies against obvious aggressors, selling arms can all be positives.

          So, now really the question is not whether the US should attempt to do so, but rather how it should attempt to do so. And yes, that leaves a fairly wide swath of stuff on the table, some of which you may reasonably reject. But while I agree that it is not America’s “role” to do these things, it certainly can be in our interest to do them, and when it is we should. And that is how I (perhaps too generously) interpret Bush’s claims about the relationship between the US and world peace/stability. Certainly I don’t see anything in what he said that suggests he thinks we should “micromanage the entire planet towards a democratic capitalist utopia.” But to be fair I haven’t listened to everything he says, so maybe he did intend to convey that.

          If Jeb! wants to waste his fortune, it’s a free country and he’s a free man…

          The question wasn’t what Jeb is free to do. The question was whether you are really would be “all for” whatever he decides should be done provided it doesn’t cost the taxpayer anything. Again, I’d be very surprised if you were. I suspect, as you imply above, that your disapproval of certain things has far more to do with the negative consequences (“but I think it’s ultimately a negative in practice, being more destructive to world peace and stability than promoting same”) than the mere fact that it costs taxpayer money to do it.

          But anyway, as I said upfront, this particular point was more an instance of my own pedantry than anything else, so probably not worth belaboring.

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        • @scottc1: ” as if nothing at all could possibly done about it”

          I think some things can be done about it, but it’s not possible for us to do it unilaterally. We should be involved in it as much as any other 1st world nation. I do not think us being the unilateral driver of world peace can be done.

          How we have conducted ourself in the post GHW Bush era, starting with Clinton and going forward with Dubya and now Obama, seems to be a bit of “throwing bombs and money at the problem”, without it ever being established exactly what the problem is or exactly how what we are doing is going to help. I would prefer we spend less time trying to drive world politics and more time tending to our own knitting. Not because I think world peace is not desirable, only because we have only one real, achievable goal in regards to world peace, and that’s defeating any nation that declare war on us, and helping any allies in the same position.

          Put more plainly, I’m not sure our engagement in Iraq or the deposing of Hussein did anything to benefit us, nor do I believe our continued engagement in Afghanistan is actually of much benefit to us, nor do I think much of our covert monkeying in world affairs has been a net positive in the past. Ultimately, though, it will never be my decision, so it’s academic!

          “The question wasn’t what Jeb is free to do. The question was whether you are really would be “all for” whatever he decides should be done provided it doesn’t cost the taxpayer anything.”

          To be clear, I’m all for him to be free to pursue his own goals with his own resources through whatever legal ends are available to him. I’m all for the Bill and Melinda Gates foundation being *able* to do anything they want to with their money, even if I might not support the particulars. Just as I’m all for companies like Solyndra trying to make great solar technology while the executives live to good life, I just think they should be footing that bill. I may not ultimately think solar technology is a good thing or that the kind they are doing is good, but I’m all for them doing it with their own money and the money of voluntary investors. And so forth.

          Perhaps I’m reading to much into Bush’s statement, and he’s not advocating that the US be the world’s policeman and benefactor (although there was definitely a touch of that in Dubya and Rumsfeld in both Afghanistan and Iraq). Even then, I think “world peace” like “eradicating poverty” is the wrong goal, because it’s ambiguous, with moving goal posts, and involves the behavioral choices of far too many people. Goals should be more realistic, such as “supporting and protecting our allies” or “working diplomatically with NATO” or “not signing off on Iran getting the bomb right away” or “not sending North Korea nuclear technology”.

          Or, in terms of a war on poverty, it might be something specific in terms of getting so many people off the welfare rolls or incentivizing companies to increase entry level wages or extra tax breaks for every ten employees hired . . . a goal to increase workforce participation is a difficult one, but less magical than “eradicating poverty” or ensuring every human being, no matter what, always has a “living wage” (and I would put “living wage” up with “world peace” in the uselessly ambiguous department).

          Also, you may consider my comment snarky, but given the time scale it may be more likely that we can do something about supernovas than provide something could generally be called “world peace” (although, presumably, by that time we would be talking about “galactic peace”). Yes, we are more limited in regards to supernovas at the moment, but one day . . .

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    • McWing:

      Just heard Jeb Bush say that America’s role is to bring “peace and stability to the world.” Does anybody hear agree with that?

      I don’t think it is the role of the US to bring peace and stability to the world, but I do think that 1) world peace and stability is generally in the best interests of the US and 2) as the richest and militarily most powerful nation in the world the US is in a unique position to promote its own interest on this front. Does anybody disagree with that?

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      • I agree with it in theory. I don’t know that ultimately we ever successfully promote world peace without our giant military and riches. I think it’s a case of it being a nice idea and even theoretically possible but something to be avoided in practice, as we have sufficient evidence of neutral or negative outcomes, despite the richest spent and military men and women sacrificed in its pursuit.

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      • Couldn’t one argue that our richness and military might has been depleted by attempting to secure world peace? That seems persuasive to me, we’re compromised to the point of vulnerability now as well as having an electorate very militarily risk averse.

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        • McWing:

          Couldn’t one argue that our richness and military might has been depleted by attempting to secure world peace?

          I suppose, but I don’t think it would be true. A look at US GDP per capita in inflation adjusted terms shows nearly constant increase. The US government will have collected more tax revenue in 2015, again in inflation adjusted dollars, than in any year in our history. By what measure has our richness been depleted at all, much less by foreign entanglements? I suppose one might say that our military might, relative to other nations, has been depleted in that more nations have a nuclear capability today than ever before, but apart from that (which I don’t think can be attributed our “world peace” efforts) in what way is our military might less today than in the past?

          I think one might be able to argue that attempts to secure world peace are somewhat futile and perhaps even counterproductive, and hence not worth the cost. But I do think that a more peaceful and stable world is in the interests of the US (do you disagree with this proposition?), and so to whatever extent the US is able to make the world a more peaceful and stable place, there is at least some cost level that is worth bearing to make the effort.

          That seems persuasive to me, we’re compromised to the point of vulnerability now as well as having an electorate very militarily risk averse.

          I am not sure how vulnerable we are, but sure, I definitely agree that we have an electorate that has become much more averse to military action than in the past, and that is at least in part due to past actions that are seen as futile and wasteful.

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        • I agree that tax collections are at an all time high, however, our debt-to-GDP ratio is as well, our GDP growth rate is now permanently anemic and the labor-force participation rate hasn’t been this low since the seventies. The debt required to maintain even our current military posture is, I’d argue, a huge reason for our current (and perpetual) anemic growth. Our military might is affected by these conditions (ie the lack of a sustainable funding mechanism) as well as the world’s understanding of our current economic conditions. Further, a populations risk-averseness to the use of the military is also a contributing factor to the reduction of our military capability.

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        • McWing:

          The debt required to maintain even our current military posture is, I’d argue, a huge reason for our current (and perpetual) anemic growth.

          The debt is not needed to maintain our current military posture. It is needed to maintain the massive domestic welfare state. Less than 20% of the budget goes to defense, while spending on domestic welfare/entitlement transfers makes up over 60% of spending. Defense spending as a percent of GDP has been on a consistent downtrend since the 1950s. The debt is not a function of military spending, and is not required to maintain our current defense posture.

          Our military might is affected by these conditions (ie the lack of a sustainable funding mechanism) as well as the world’s understanding of our current economic conditions.

          That could well be. All the more reason to reduce the debt by not spending so much on domestic wealth transfers, so that the federal government can continue to perform its core function properly.

          Further, a populations risk-averseness to the use of the military is also a contributing factor to the reduction of our military capability.

          That could be, too.

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        • Debt is debt, it no longer matters what is driving it, what matters is that it’s existernce now has a huge impact on the US and the military going forward.

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        • McWing:

          Debt is debt, it no longer matters what is driving it, what matters is that it’s existernce now has a huge impact on the US and the military going forward.

          I think it definitely matters if you are talking about “going forward”, because in the future whether or not we can afford to project military power as we have in the past depends largely on future spending choices, unless one thinks that the economy is locked into inevitable and permanent decline no matter what we do going forward. I don’t (although the chances that spending choices get properly altered probably are remote.)

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        • I don’t think our spending patterns will be substantially altered or reformed, therefore permanent decline.

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        • McWing:

          I don’t think our spending patterns will be substantially altered or reformed, therefore permanent decline.

          I would say that the odds are better than even that you are correct. But in the interim, rather than advocating for less spending on the core function of the federal government, which already makes up less than 1/5th of spending, I prefer to advocate for spending less on the constitutionally questionable spending that makes up the vast majority of government spending.

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        • I actually think both should be done, military and welfare (Medicare and SS) spending, radical cuts.

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        • That’s fair enough. I would just rather have the US, instead of some other nation, be the dominant military power on the planet, and that is going to cost. I’d rather have massive military power and not use it than need massive military power and not have it. Although I will grant you that whether or not current levels of defense spending are necessary to maintain that kind of superiority is a legitimate question.

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        • My preference would also be that the US is the dominant world military power. I would argue that our power has been too large and to generous as we have allowed many, if not all of our allies to forgo spending on their military defense because they know we will not. Part of the problem we are seeing today is a result of that.

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        • McWing:

          I would argue that our power has been too large and to generous as we have allowed many, if not all of our allies to forgo spending on their military defense because they know we will not.

          That is an interesting point.

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      • Medicare and Medicaid/CHiP spending make up 22% of the budget. Defense makes up 18% (more if you included veterans programs and military retirement). The telling # is the 6% on the debt, and also the fact that a huge component is mandatory (66%) spending. Income security makes up 11.6% of the entire budget, while healthcare makes up 23.5% not counting Veterans Health. But we spent more on the interest on the debt than we do on more controversial entitlements like SNAP, school meals, low-income housing assistance, child care assistance, energy bill assistance, aid for abused and neglected children supplemental security income all added together. We need to do a TARP for paying down our own debt! That would solve a chunk the problem right there.

        http://www.cbpp.org/research/policy-basics-where-do-our-federal-tax-dollars-go

        A slightly different chart (7% on the debt, but 11% on welfare) but it comes down to the same thing. Extract the counting of EITC and Child Tax Credits from “welfare” and we’re paying almost the same in interest as we pay for all the entitlement programs people complain about.

        The real money entitlements are in Medicare, Medicaid, and CHiP. And I get a sense that both fraud, unnecessary care, and over-administration take up a huge chunk of that cash. Of course, over-administration probably accounts for a great deal of defense spending as well.

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        • KW:

          Extract the counting of EITC and Child Tax Credits from “welfare” and we’re paying almost the same in interest as we pay for all the entitlement programs people complain about.

          I don’t know about “people”, but I complain about all the entitlements, including SS, Medicare and Medicaid. That being said, it is definitely true that if we ignore the vast majority of welfare/entitlement spending that actually does take place, we spend almost the same on debt interest as we do on welfare.

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        • The claim is that SS is somehow “100%” paid for, but of course that’s via wealth redistribution from the young to the old, although they once had their wealth similarly redistributed so I suppose it’s something of a wash. Although as the old begin to outnumber the young more and more, I expect that will become less of a 100% funded thing.

          What would you think if FDR has set up SS as a pension, run by something that essentially operated as a public utility that the treasury could audit but which would not, by law, have any access to SS funds ever, and where they could never intermingle said funds? Maybe a utility that collected your SS payments as a check that you wrote monthly, perhaps added to the average working citizens electric bill or water bill as a line item? Then it would technically not be in the budget at all.

          I’d like us the federal government to get out of healthcare entirely, but good luck with that! Or . . . set up public hospitals where the bill is discounted by your IRS income, so if you’re poor enough, no matter how old you are, it’s free! No CAT scan for you, though. But private hospitals and practices could continue to operate, and would never have to worry about Medicare or Medicaid payments because they’d never be paying them.

          Part of why both medical spending and defense spending is so high, I think, is because so much can be hidden in them. While I don’t think we could really spin off the DoD and make it a public utility, I would bet hard cash that we’ve be spending a quarter of what we do on healthcare with the public hospital strategy. And the care would be crappy but liberals couldn’t complain because that would be admitting the government does a crappy job at healthcare. Everybody wins!

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        • McWing:

          What would you think if FDR has set up SS as a pension, run by something that essentially operated as a public utility that the treasury could audit but which would not, by law, have any access to SS funds ever, and where they could never intermingle said funds? Then it would technically not be in the budget at all.

          Sure it would, the government would just have 2 distinct budgets covered by 2 distinct revenue streams. But that is just an accounting fiction – one that actually exists already in the current format. Funds are not allowed to be intermingled now. The funds are segregated. The way it is accomplished is that the SS Trust Fund “invests” its excess funds in US government debt, thus “lending” its funds to the government, which then spends it on other, generic spending priorities. Then the government pays the Trust Fund a “return” on the “investment” out of generic tax revenues. So the distinction between FICA funds and generic revenues is pretty meaningless.

          I suppose if the goal is to make it appear that the government spends less on welfare programs than it really does, removing SS from the equation would do it. But the reality is that the government taxes and spends for SS just as it does for any other government program. So I don’t understand why we should treat SS spending as something other than what it is. It is not a pension scheme. It is not an investment owned by the contributor. There is no investment contract. The government can force you to pay more or decide that it is going to pay you less any time it wants. It is at best a straight up welfare program. (At worst it is a straight up Ponzi scheme.) So whether you want to look at government taxing and spending as one whole budget, or two separate budgets, the reality of how much and what the government is spending on doesn’t change.

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        • The government will always abuse any resource it manages.

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        • McWing:

          The government will always abuse any resource it manages.

          That is almost certainly true, but unless it leads you to advocate providing literally no resources to the government to do anything at all, it isn’t much of an argument against providing a given amount of resources for a specific purpose.

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        • It advicates giving it the absolute minimum.

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        • McWing:

          It advicates giving it the absolute minimum.

          I totally agree with you on giving the government the absolute minimum. The question is, however: What is that minimum that allows it to fulfill its role. We can disagree about what that minimum is, or even what that role is, but I don’t think pointing out that the government will always abuse whatever it is given helps establish the point either way.

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        • Don’t you think it established the principle that govt’s role should be as small as possible since it will abuse every resource and power it has?

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        • McWing:

          Don’t you think it established the principle that govt’s role should be as small as possible since it will abuse every resource and power it has?

          Sure, and I think we agree on that principle. I think the federal government should be as small as possible to maintain global military superiority.

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        • Do you think, given the politics of the US as it is now and will be for the foreseeable future, that a dominant military is sustainable? I don’t. I also don’t think you can have a dominant military when the population is this casualty averse, enemies see this and that is one reason why we’re at where we’re at.

          If you accept my above premises as inhibitors to the US maintaining its role as a world power, what are your implementable solutions?

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        • McWing:

          If you accept my above premises as inhibitors to the US maintaining its role as a world power, what are your implementable solutions?

          Well, I don’t think I do accept it. I don’t necessarily think that maintaining a dominant military is a function of a low level of casualty averseness. Obviously the willingness to use that military, whatever its strength, is, and I think I understand the implication you are suggesting, ie that a reluctance to project force emboldens enemies to challenge our power. However, in such a case, I think it might be even more important to maintain ultimate dominance, such that when our enemies finally do go far enough to overcome our reluctance (which if you are correct they are increasingly likely to do), we know we can defeat them.

          Certainly it is preferable to have enemies that are afraid to challenge us, and a reputation of a dominant military can help create that circumstance. But as they become less afraid to challenge us, I think the reality of a dominant military becomes increasingly important.

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        • I submit that casualty averseness is a large factor in being considered militarily dominant and we haven’t demonstrated it since Tet.

          How would you pay for this dominance that would pass in today’s political climate

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      • @mcwing: “Don’t you think it established the principle that govt’s role should be as small as possible since it will abuse every resource and power it has?”

        The only way to assure that would be to get politicians out of government!

        There should have been a 4th branch of government. The oversight branch, possibly a house with proportional representation voted on with districts determined by county boundaries and populations, rather than drawn districts. The mandate of this house would basically be to veto stuff. They couldn’t amend it, they couldn’t fix it, and by law they could not be lobbied. Basically, all this house could do would be curtail attempts at government expansion. As with overriding a presidential veto, 2/3rds of both houses would have to vote for override. They could also veto supreme court rulings, leaving the congress and senate no choice but to actually pass a law with specific language if they wanted something the SCOTUS found in the penumbras and emanations.

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  5. @mcwing:”I actually think both should be done, military and welfare (Medicare and SS) spending, radical cuts.”

    I don’t care about SS cuts, because as far as left wing entitlements go I find that one the least noxious, and also the one that financially makes the most sense. I don’t know how much waste their is, but the amount spent does not seem insane, given the number of people now collecting SS.

    I tend to suspect there is a great deal of waste in DoD and Medicare and Medicaid and CHiP spending, and would like to see also those programs audited and restructured.

    To be clear, I am not convinced that the $625 billion that goes to the DoD is well spent. That is, spend on national defense in any meaningful way. I also don’t think the $115 billion we spent on war making in 2013, and that we continue to spend, is money well spent. I’d be happy to put all that money towards paying down the debt.

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    • KW:

      I don’t care about SS cuts, because as far as left wing entitlements go I find that one the least noxious, and also the one that financially makes the most sense.

      In what way does it make sense to tax relatively poor young people and relatively less poor middle aged people raising kids in order to give welfare payments to relatively wealthy older people?

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      • Scott – I know you are much younger than I, and you may not recall that after pledging to narrow deficits RWR DOUBLED THE NATIONAL DEBT in his first four years by increasing military spending. Stockman considered the first term a failure. However, I do know that you understand that wars were paid for by deficit spending, but “off-line”, and not in the “budget”, by both WJC and GWB.

        It is also true that Medicaid is the Big Hole in the on-line budget, and is probably even bigger than the off-line war budget, although I do not know this.

        As George says, all Debt is debt; although I would argue a qualitative difference among debts based on whether they are foreign or domestic, for example.

        So long as the Trust Fund is growing, I agree with KW on SS OAB. The fixes necessary to keep this in the black, on paper, are still relatively doable, although Congress has screwed around not doing this for about 8 years now.

        We have avoided catastrophe, I think, because we have the world’s trusted currency. Lose that and the Black Hole beckons, probably. That reliance on being the reserve currency permitted the Cold War deficits to blossom without any serious concern by pols in DC.

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        • Mark:

          I know you are much younger than I, and you may not recall that after pledging to narrow deficits RWR DOUBLED THE NATIONAL DEBT in his first four years by increasing military spending.

          I remember Reagan’s deficits and increased debt. But deficits and debts are not caused by specific areas of spending. They are cause by the failure to balance total tax revenue against all spending. There is no natural and preordained spending priorities that allow us to proclaim at any given time that spending on X is covered by tax revenues and therefore spending on Y is causing the debt. It is just as reasonable to say that Reagan’s deficits were caused by his failure to convince congress to decrease welfare spending as it is to say that they were caused by his success in getting congress to increase defense spending.

          Ultimately the question of taxation, spending, and debt comes down to a basic, two-fold question: What is the necessary and proper role of the federal government, and how much revenue is necessary to allow it to fulfill that role? It is my view that, except in extreme circumstances like war, the ability to raise revenue through taxes should be and is sufficient to allow the government to fulfill its responsibilities, and that extended and persistent deficits derive from the desire of the government to play a bigger role than that which is necessary and proper under the constitution.

          To whatever extent you and I disagree over the causes of our current debt and deficits, I suspect it is primarily a result of disagreement over what the proper role of the federal government actually is. The federal government is supposed to be defending the nation from foreign threats, and it is not supposed to be guaranteeing an income, or health care, or a comfortable retirement, to citizens. Therefore when the government spends the vast majority of the money it collects every year on the latter, it makes no sense at all to me to proclaim that spending on the former, or even increases over past spending on the former, are the “cause” of our need to issue debt.

          It is also true that Medicaid is the Big Hole in the on-line budget, and is probably even bigger than the off-line war budget, although I do not know this.

          According to the data below it is way bigger. Medicaid expenditures were already larger than the on-line defense budget, and the supplemental (off-budget) appropriations on the wars in Afghanistan and Iraq were always smaller than, and except for 2007 and 2008 less than half, the defense budget itself.

          See page 4 for a comparison of the declared defense budget to the supplemental appropriations.

          So long as the Trust Fund is growing, I agree with KW on SS OAB.

          I’ll ask you the same thing I asked Kevin: How does it make any sense to transfer wealth from young, relatively poor workers, and middle aged workers at the height of their personal expenses (due to caring for children), to old, relatively wealthy non-workers?

          We have avoided catastrophe, I think, because we have the world’s trusted currency. Lose that and the Black Hole beckons, probably.

          I think you are right about that.

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      • @scottc1: “In what way does it make sense to tax relatively poor young people and relatively less poor middle aged people raising kids in order to give welfare payments to relatively wealthy older people?”

        I mean that it makes sense in terms of inflow and outflow. It doesn’t look (to me, I’m no expert) like there are potentially huge gaps in the spending, or government waste chewing threw the cash. I didn’t say the pyramid scheme makes good sense. Something structured like a pension in reality would make more sense to me.

        Although since you asked, I believe the concept is that you pay for old people now, young people pay for you when you are old, so everybody is paying in and everybody is collecting. I’m not sure this makes a huge amount of sense, but it’s not unlike being forced to save for your retirement, only you aren’t actually saving. You’re paying for old people’s retirements, and young people will pay for yours. Which will continue to make sense financially until you’re part of the generation that doesn’t get anything because SS has collapsed!

        The practical result is you get a benefit you “paid into”, although your paying into actually went to old people when you were younger and working, while young people paying into it will get “back” what they put in in some form, only as a matter of accounting it’s not actually the cash they put in, that’s going to you. It sorta makes kinda sense in that respect, although not much, but that wasn’t what I meant.

        I would like to see SS reformed to something personalized and accounts you own, ala Dubya’s SS reform (my favorite thing he proposed, and it got nowhere, of course).

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        • KW:

          I mean that it makes sense in terms of inflow and outflow.

          At current tax rates, population growth rates, and life expectancy rates, outflows will begin to outpace inflows some time in the next 20 years. It is a mathematical certainty that SS will run out of money. It can be “fixed” only in one of two ways: Continue to periodically raise the effective SS tax rate ever higher, or decrease the total benefits being paid out. Since inception the SS tax rate has been hiked fully 20 times, from 2% to 12.4%, and the maximum income level on which it must be paid has, in real terms, more than doubled. In other words the SS program has a history of pretty much near constant efforts to increase inflows, and it is still on the brink of turning into a deficit. How does this possibly make any sense?

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      • @scottc: “How does this possibly make any sense?”

        I’m still not being clear. That is, when I look at the billions being spent on SS, the amount of money being spent seems credible in terms of most of it going to cut checks to senior citizens. It makes sense in the sense that I don’t have nagging suspicion that a few billion here and there are getting misplaced. Not that the strategy is a good one. I would think there would be a better way to arrange such a system.

        Recently saw a post of the Facebook attacking Dubya’s plan to “privatize” SS, which it was not and never was, while also making the statement that the recent stock market downturn (recent as of the creation of the graphic, at least) would have left ever retiree penniless if Dubya had gotten his way. And it’s just not remotely the case. And I’m curious what person whose been regularly investing in some various index funds over the past 30 years on a monthly or biweekly basis, investing a little when the market was up and the market was down, wouldn’t still be getting a much better return on their money even in the worst day of the stock market in the past 10 years. Tangent, but still.

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