Posted on 04/07/2015 10:02:03 PM PDT by concernedcitizen76
Renowned economist Laurence Kotlikoff recently testified at the U.S. Senate about the runaway U.S. budget. How bad is it?
Kotlikoff says, “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. The government is 58% underfinanced. Social Security is 33% underfinanced. So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape.”
So, how much is America on the hook for in the future?
Kotlikoff contends, “If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything, and take all those expenditures into the future and compare that to all the taxes that are projected to come in, and the difference is $210 trillion. That’s the fiscal gap. That’s our true debt.”
Professor Kotlikoff goes on to say, “It will collapse. It is just a matter of when. I can’t say when, but all I can say it’s going to be too late. We are seeing signs of this in the economy, but we are not picking it up that clearly. The macro economy is not doing all that well.”
Kotlikoff goes on to say, “I think our financial system is really built to fail because it combines two things which really haven’t been addressed. It combines leverage, borrowing by the financial middlemen and then investing in things that they don’t tell you they are investing in. So, there is opacity and leverage. These are the two major problems for the banking system. What we need to do is get rid of the leverage and get rid of the opacity. We need full disclosure of the investments of our financial institutions.”
Where can you get a safe investment?
Kotlikoff says forget U.S. Treasury bonds. “I think they are one of the riskiest securities in the world because interest rates are likely to go up. I think the Fed is going to have to keep printing money because Congress isn’t paying our bills, and that’s going to lead to inflation eventually. So, I think long term Treasuries are extremely risky, and they can drop 5%, 10% or 20% overnight. That could put my bank that was viewed as perfectly safe today out of business. So we could have inflation take off and interest rates go up. We could have banks fail, and that could lead to runs on other banks.
That’s the scenario,” says Professor Kotlikoff.
He did not answer the question, where should you put your money?
This guy is an idiot.
Doesn’t he watch the news?
Things could have been worse were it not for Oblah blah...
Brass, lead and smokeless gunpowder...
That’s what I want to know - where should we put our money?
The US economy is a Potemkin village built on debt and printed dollars. There is simply not the real wealth being created to service existing debt and tens of trillions more of unfunded liabilities.
So what does this crash actually look like? Out of control inflation? Employers laying people off?
“He did not answer the question, where should you put your money?”
Well then, that IS the $64,000 question (or however much money you have).
Fundamentally, it boils down to when the end will come and how it will come. The when could actually be a long time or short. The U.S. economy is powerful: we are a very rich nation, so we MIGHT be able to get by for years before we’ve printed our currency to death. Or there could be a Black Swan event and the whole thing could collapse overnight, depending upon how brittle our systems are.
As to the how, aside from the sudden collapse scenario, there are two slow scenarios: inflation and deflation, each of which would have it’s own counter-strategy.
Personally, I think deflation is less likely because it’s a simple matter for central banks to simply print lots of money quickly. Thus, if the stock market suddenly collapsed for example and trillions instantly went poof, the central banks just snap their collective fingers and conjure unlimited replacement trillions, though of course the folks that get those trillions are not necessarily the ones who lost the original trillions, especially the peasants who are on the losing end of the collapse.
Inflation on the other hand has no simple solution: you obviously can’t print your way out of it, though in fact that is exactly what central banks will attempt to do under orders of their government masters who will order this to happen in a vain attempt for these masters to stay in power for a few more years, months or weeks as the case may be.
Thus, absent a Black Swan event, I personally predict inflation will be our likely demise, though such an inflationary collapse could still be many years from now.
Well, then what to do if you believe inflation will be the end. If you’re old like me, you pretty much do nothing as most strategies are long term. If you’re young, then you might have options.
One is precious metals, but the pitfalls here are that the total worldwide quantities are very, very small and not worth very much in sum. In fact, the quantities are so small values are easily manipulated, and in fact ARE manipulated. So, again assuming there’s no sudden collapse scenario, I’m not too keen on precious metals.
Another strategy is to invest in paper “assets”, paper assets that are presumed to ratchet up with inflation, like say the stock markets. But these too are MASSIVELY manipulated and are subject to Black Swam collapse.
So that basically leaves buying and holding useful stuff, real things like real estate and farmland. People will always need to eat and they will always need somewhere to live. Additionally, good farmland and water rights are limited in quantity: they aren’t making any of either. Also, farmland is the ultimate source for most food.
Real estate is a little more dicey because they are in fact making more of it, and it requires maintenance, effort to rent, and is subject to market price fluctuations.
The next closet play to farmland is fertilizer, namely potash and phosphate mines. Naturally, these latter are pretty high-priced now because the smart people have already figured this out, but they probably are still valuable to own at almost any price.
Finally, oil and natural gas are definitely another great long term inflationary play. World infrastructure runs nearly exclusively on petroleum products, both as feedstocks and energy sources, especially farming and the nitrate-based portions of fertilizer. Petroleum and natural gas might even be the best long term inflationary play right now because their prices are so ridiculously depressed. Remember: buy low and sell high. And the only way to buy low is to have the guts to buy something no one else wants.
As stated above....Beans and Bullets. Not kidding.
I like to hear what this professor says because of his far ranging mind and fierce independence of thought. Kotlikoff doesn’t tow the party line, Democratic or Republican. The Obama Admin and CBO both dislike and fear him because he calls them on their economic conjuring tricks.
From biographical sources:
“Laurence J. Kotlikoff is a William Fairfield Warren Distinguished Professor and Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, and President of Economic Security Planning, Inc., a company specializing in financial planning software. Professor Kotlikoff received his B.A. in Economics from the University of Pennsylvania in 1973 and his Ph.D. in Economics from Harvard University in 1977.
From 1977 through 1983, he served on the faculties of economics of the University of California, Los Angeles, and Yale University. In 1981–82, Professor Kotlikoff was a Senior Economist with the President’s Council of Economic Advisers.
Professor Kotlikoff is author or co-author of 14 books and hundreds of professional journal articles. His most recent books are Jimmy Stewart is Dead (John Wiley and Sons), Spend ‘Til the End, (co-authored with Scott Burns, Simon & Schuster), The Healthcare Fix (MIT Press), and The Coming Generational Storm (co-authored with Scott Burns, MIT Press).
Professor Kotlikoff publishes extensively in newspapers and magazines on issues of financial reform, personal finance, taxes, Social Security, health care, deficits, generational accounting, pensions, saving, and insurance.
Professor Kotlikoff has served as a consultant to the International Monetary Fund, the World Bank, the Harvard Institute for International Development, the Organization for Economic Cooperation and Development, the Swedish Ministry of Finance, the Norwegian Ministry of Finance, the Bank of Italy, the Bank of Japan, the Bank of England, the Government of Russia, the Government of Ukraine, the Government of Bolivia, the Government of Bulgaria, the Treasury of New Zealand, the Office of Management and Budget, the U.S. Department of Education, the U.S. Department of Labor, the Joint Committee on Taxation, the Commonwealth of Massachusetts, the American Council of Life Insurance, Merrill Lynch, Fidelity Investments, AT&T, AON Corp., and other major U.S. corporations.
He has provided expert testimony on numerous occasions to committees of Congress including the Senate Finance Committee, the House Ways and Means Committee, and the Joint Economic Committee.”
On Taxes
Kotlikoff has been a supporter of the FairTax proposal as a replacement for the federal tax code, contributing to research of plan’s effects and the required rate for revenue neutrality. In 2010, Kotlikoff offered his own tax proposal, titled the Purple Tax (a blend of red and blue), a consumption levy that he says cleans up some problems with the FairTax.
His plan calls for a 15% final (17.5% nominal) sales tax. The FICA tax ceiling is gone and the 7.65% of the employees contribution is applied on everything after $40,000 but the employer pays 7.65% on the employees entire salary.
On Healthcare
In his 2007 book, The Healthcare Fix, Kotlikoff proposed a major reform of the U.S. healthcare system, subsequently dubbed “The Purple Health Plan”, that would do away with Medicare, Medicaid, employer-based healthcare, and health exchanges established under the Affordable Care Act.
In their place, every American would receive a voucher for a basic health insurance policy, whose coverages would be established by a panel of doctors such that the total cost of all vouchers remained within a fixed share, e.g., 10 percent, of GDP. The voucher would be provided by the government at no cost and its amount would be individually risk-adjusted, i.e., sicker people would receive larger vouchers. No health insurance company providing the basic insurance plan could turn anyone away and those who could afford supplemental health insurance plans would be free to purchase them.
On Finance
Kotlikoff’s proposed reform of the financial system, discussed in his book “Jimmy Stewart Is Dead,” called Limited Purpose Banking, transforms all financial companies with limited liability, including incorporated banks, insurance companies, financial exchanges, and hedge funds, into pass-through mutual funds, which do not borrow to invest in risky assets, but, instead, allows the public to directly choose what risks it wishes to bear by purchasing more or less risky mutual funds.
According to Kotlikoff, Limited Purpose Banking keeps banks, insurance companies, hedge funds and other financial corporations from borrowing short and lending long, which leaves the public to pick up the pieces when things go south. Instead, Kotlikoff argues Limited Purpose Banking forces financial intermediaries to limit their activities to their sole legitimate purpose—financial inter-mediation. It would substitute the vast array of extant federal and state financial regulatory bodies with a single financial regulator called the Federal Financial Authority (FFA), which would have a narrow purpose namely to verify, disclosure, and oversee the independent rating and custody off all securities purchased and sold by mutual funds.
On Politics
Kotlikoff fervently dislikes both political parties and has called for a third party, which he hopes will save America. In January 2012, Kotlikoff announced his plans to run as a third party candidate for President of the United States in 2012. Kotlikoff said he would seek the presidential nomination of the non-partisan advocacy group “Americans Elect.” He announced in May that he would also seek the nomination of the Reform Party of the United States, but ended the bid after the Americans Elect board decided to not field a 2012 presidential ticket.
When someone says Joe Bloe is worth billions, I always wonder if Joe could gather his worth in actual cash.How does one cash in these days. Banks and government make that impossible. Does Joe really have all of that money if he can’t touch it?
We’re in a world of virtual credits on a computer screen. The future of wealth is unseen, untouchable, and humanity is almost at a point when physical money is obsolete. So worrying about debt and deficit seems childish I mean they are just zeros on a computer screen.
The millennials are proof positive. On to a brave new world.
But suppose that yesterday's power outage in D.C. was not just a blown sub station in MD but the start of an actual cyber war and the Russians succeeded in both planting easter eggs in all our financial institutions and shutting down our power plants. Even if we get the power on, those easter eggs may come to life as the power comes on again and all those virtual dollars could be gone.
Coal rights should be a bargain right now.
(from your post)
—
On Politics
Kotlikoff fervently dislikes both political parties and has called for a third party, which he hopes will save America. In January 2012, Kotlikoff announced his plans to run as a third party candidate for President of the United States in 2012. Kotlikoff said he would seek the presidential nomination of the non-partisan advocacy group “Americans Elect.” He announced in May that he would also seek the nomination of the Reform Party of the United States, but ended the bid after the Americans Elect board decided to not field a 2012 presidential ticket.
—
Just saying. The guy is in politics.
This may be good, or may be bad.
He sounds like he gets it, but just pointing out he’s dabbling anyway.
Both parties are completely sold out to China though, so he just might be completely on the right track, as well.
Yes, these are all timed so not to make Dems look bad.
Surely Trump can’t tough a billion dollars. That’s why he keeps doing TV. Even Buffet and Gates would have to sell their stock to touch their billions and they would give 25% away to the government. And possibly the price will go down. Thats why Apple and Microsoft where down when everyone else was up. Gates was slowly selling his Microsoft shares, a million a year. And the Jobs family had to sell their Apple shares after he died.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.