Weekend reading.
A simple accounting trick is arming austerity hawks with a powerful, phony weapon.Again the question arises, morons or complicit?
All the serious people in Washington know we have a debt problem. “Rapidly Growing Debt Threatens America’s Economic Future” blared a typical press release from Senate Budget Committee chairman Mike Enzi. “It is clear from [Congressional Budget Office] analysis that rapidly growing public sector debt threatens America’s economic future,” he said.
There’s just one problem. The numbers relied upon by Enzi and far too many others inside the Beltway, including the Congressional Budget Office itself, are completely bogus. The methodology used by the CBO to create these projections exaggerates the federal government’s long-term debt projection by as much as 440 percent, creating a phony fiscal crisis where none exists.
In reality, data provided to The Nation by Stephen Goss, chief actuary of the Social Security Administration, shows that starting in 2032 the federal government’s debt held by the public is on track to rapidly decline as a share of GDP, bottoming out at 40 percent. This is in stark contrast to the CBO’s sharply rising debt-to-GDP ratio, which peaks at 176 percent in 2090.
There’s just one problem. The numbers relied upon by Enzi and far too many others inside the Beltway, including the Congressional Budget Office itself, are completely bogus. The methodology used by the CBO to create these projections exaggerates the federal government’s long-term debt projection by as much as 440 percent, creating a phony fiscal crisis where none exists.The con is on.
In reality, data provided to The Nation by Stephen Goss, chief actuary of the Social Security Administration, shows that starting in 2032 the federal government’s debt held by the public is on track to rapidly decline as a share of GDP, bottoming out at 40 percent. This is in stark contrast to the CBO’s sharply rising debt-to-GDP ratio, which peaks at 176 percent in 2090.…
The Nation
Why Is the CBO Concocting a Phony Debt Crisis?
Ari Rabin-Havt
9 comments:
The problem is using the "debt to gdp ratio" in the first place... one is a stock and one is a flow..This is like saying "you cant take a 300 mile road trip because the speed limit is 55!"
Here is a NASA discussion of Thrust to Weight Ratio. They've somehow come to believe that this flow-to-stock relationship helps determine whether an aircraft will leave the ground. Bad economics applied to physics, I'd guess.
https://www.grc.nasa.gov/www/k-12/airplane/fwrat.html
Uh no..... Thrust is a force and weight is a force on earth via gravity...
F=ma (taught at HS level physics in USA...)
Here:
Thrust is a reaction force described quantitatively by Newton's second and third laws. When a system expels or accelerates mass in one direction, the accelerated mass will cause a force of equal magnitude but opposite direction on that system.
Force, and thus thrust, is measured in the International System of Units (SI) as the newton (symbol: N),
https://en.wikipedia.org/wiki/Thrust
The mass of the vehicle is being accelerated by gravity 9.8 m/s2 ...
Here:
The weight of an object is the force of gravity on the object and may be defined as the mass times the acceleration of gravity, w = mg. Since the weight is a force, its SI unit is the newton.
http://hyperphysics.phy-astr.gsu.edu/hbase/mass.html
iow, you have gravity acting on the vehicle measured in Newtons and the motors acting against gravity measured in Newtons... its the same SI unit...
Debt units are $, gdp units are $/t.... this should be your tip-off....
btw Universities teach this stuff 24/7/365.... (TIP: in the science and engineering departments not the economics dept or political science depts or liberal arts depts......)
The problem is using the "debt to gdp ratio" in the first place... one is a stock and one is a flow..
It's the debt to income ratio (GDP = Y). It's standard in analysis for lending to firms and households, rating corporate securities, etc. The analysis is supposed to reveal the ability to service a loan or debt security. Financial analysts also look at future interest obligations to income in addition to principal (IGBC).
The mistake isn't so much the ratios, which are standard in analysis, as comparing a government that is a currency sovereign with households and firms. Such a government doesn't need to obtain its currency to service its debt.
The probably realize it since Alan Greenspan famously told them in congressional testimony in answer to Paul Ryan about "running out of money." Rather, it is because "inflation" and "weakening the dollar" in the fx market.
The CBO need to understand that all government spending will come back as tax if no-one saves in the spending chain.
It's that saving that *causes* the deficit.
You can't necessarily reduce it by cutting spending or raising taxes.
So they assume that $x "cuts" will reduce the deficit by $x. Well it won't because the money will be spend and respent and generate tax.
The other problem is the money multiplier nonsense
So the causality they have is totally wrong.
The real cost of government spending is the real resources it uses, and then you have to analysis the multiplier effect.
Scrap the CBO and pour money into monitoring real resources.
Tom,
If someone were to win 1M in the Russian lottery, where they pay 1/year for a million years,
would you still say they were "worth a million"?
Lenders and analysts would take that into consideration, of course.
I think that this is his objection to the CBO. They aren't looking at the balance sheet and income statement realistically but just making stuff like that up.
Tom nobody looks at the stock of debt they look at flow of income vs payments (both flows)... thats why if the rates drop, you can borrow more $$$ with the same income..
Nothing works the other way in the universe....
Look at osmosis, it doesnt matter if you have 5,000 gallons on one side of the membrane and a thimble full on the other... if the solute concentrations are different across the regulating memebrane, you will get flow across it to equilibrium.... ie "its about price NOT quantity...."
These people are simply not qualified to be working in the area they are working...
Also, I have one word: Japan.
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