Wednesday, November 19, 2008

I.O.U.S.A. Makes Oscar Shortlist For Best Documentary

The propaganda film, I.O.U.S.A has been nominated for an Oscar. This is no surprise.

The film totally miscontrues and distorts the financial position of the United States. It routinely takes things out of context and fails to understand the concept of debt as money in a modern economy or the world under a regime of floating exchange rates.

This is a well-crafted propaganda film designed to scare people, and it has done jus that. Like Al Gore's, "An Inconvenient Truth," this film could launch policy shifts designed to address the so-called "debt timebomb."

If these policy shifts occur (like forced saving and/or transformation of the U.S. economy from a consumer to exporter), it will lead to a substantial decline in the standard of living of all Americans.


Stevie b. said...

"If these policy shifts occur..... it will lead to a substantial decline in the standard of living of all Americans"

and not before time - Americans have been living beyond their means for years and years and it has on-balance suited the rest of the world for this to be the case. But the tide is turning and the financial chickens are coming home to roost. The world will eventually be a better and more balanced place when this decade-long wrong is righted.

cuOnTheOtherSide said...

Current Debt is 11 trillion,
GDP is 14 trillion
Tax revenue is 2.6 trillion for 2007

Are you saying that debt can go to 33 trillion (2.3X GDP) with no effect to the economy?

What about payment on the debt at that level?

If the Government can create money without consequence then why do we need to pay taxes?

Am I missing something?

STF said...

1. National debt is 5.3 trillion. 11 trillion number includes debt held by Fed and trust funds, which every economist knows (or should know--it's in every graduate macro text) is irrelevant for understanding fiscal "sustainability" (as mainstream economists call it), since there are no interest pmts on these made to the non-federal government.

2. Why can't debt go to 230% of GDP? In Japan, it's 180% right now, and rising.

3. Interest on the national debt is a policy variable set primarily by the monetary authority. In Japan, interest on the national debt is insignificant, because the monetary authority as the interest rate near zero.

4. We pay taxes (a) to create a demand for the currency, (b) to avoid hyperinflation.

5. Yes, you are missing EVERYTHING.

mike norman said...


When can you come on my show?


Stevie b. said...

Trying to compare the financial situation of the Japanese to Americans, Brits etc is like the proverbial chalk to cheese.

Unknown said...

"Americans have been living beyond their means for years and years and it has on-balance suited the rest of the world for this to be the case."

As a nation I believe the US had unemployment throughout those years. If all those willing to work were could not find employment, I find it difficult to believe the US was "living beyond its means."

I tend to notice that the phrase "living beyond our/its means" is a favourite amongst a lot published economic commentators. However, I have never seen the phrase defined or an idea put forth that descibes the term "means", therefore at what point do you "live beyond its means". Is it a place on a map?

If they are talking about the US trade deficit, I've not seen the US marines in my neighbourhood forcing my countrymen to take your worthless paper at gun point. On the contrary, we trip over ourselves to sell you our goods and services in return for your worthless paper. As does the rest of the world. Who gets the best deal? The person with the paper, or the person with the extra goods and services?

"Trying to compare the financial situation of the Japanese to Americans, Brits etc is like the proverbial chalk to cheese."

How so?


mike norman said...


Let me offer a definition of the term, "living beyond our means." It is from the late, Nobel laureate economist, William Vickrey.

Vickrey said:

"The only time we could be said to have been really living beyond our means was in war-time when capital was being destroyed and undermaintained. We have not lived even up to our means in peace-time since 1926, when it is now estimated that unemployment according to today's definition went down to around 1.5%. This level has not been approached since, except at the height of World War II."

cuOnTheOtherSide said...

When the Government reduces taxes they cause inflation?

The 400b in interest payments was for the 5.3t?

Check the site below, It would seem they are missing something also.

The Debt to the Penny and Who Holds It

Debt Held by the Public vs. Intragovernmental Holdings

STF said...

Use the data at the St. Louis Fed's FRED (Federal Reserve Economic Database), since it's broken down better than the Tsy's website. Only problem is, it's updated quarterly, so data I gave was as of 2nd qtr. (I also made a mistake and reported debt as debt held by public, not held by private investors--the latter is what matters for interest pmts.)

From St. Louis Fed's site:

Total debt = 9.5T
Held by Agencies/Trusts = 4.2T
Held by Fed = 0.5T
Held by Private Investors = 4.8T

As of 2nd qtr, 4.8T (not 5.3T I printed last time--sorry) is the appropriate measure.

From Tsy's website, looks like the 5.3T held by Fed and Investors combined has risen 1.1T to 6.4T since the 2nd qtr.

Where did the 1.1T come from? From Fed's balance sheet, not from additional Fed holdings, but the Tsy's balance is up over $500B, so that's part of it. Haven't gone in depth to find the rest. Could do it by looking at Tsy's financial stmts over this period if desired.

As for interest, St. Louis Fed reports this as $249B as of 2nd Qtr, which excludes at least interest to Agencies/Trusts (which is govt paying itself). Don't know if it excludes interest to Fed (of which almost all is returned to Tsy, so that shouldn't count, either)--again, could look into Tsy's financial stmts to find out (would only be about 10% at most of $249B figure, anyway, though). Link above to Tsy's website doesn't break this down as far as I've seen, but haven't looked in depth.

Finally, if we didn't pay taxes, then the currency would be worthless. That's the point. Thus, the only actual "constraint" placed on our deficits (that is, how much we cut taxes or raise spending above current tax levels) should be most appropriately based upon much inflation this might cause. In the current environment, it would seem taxes could be cut quite a bit before inflation (aside from effects on oil prices, perhaps)rises much, as we are in a deflationary environment now.

Hope this makes sense.

Mike . . . working on a date/time for the show. Thanks for the invite! Sorry about the delay.


Unknown said...

Why would anyone be on this fools blog? How can you forget Mike Norman laughing like a clueless moron at Peter Schiff back in 2006 when he predicted everything that is happening today, in almost exact detail. This is the state of things in this country today. You have people like Mike Norman peddling his clueless drivel on any network that will hire him. Take your discussions to your wife who has a better clue than this guy. By the way. I am here just to express my disgust for this man.

STF said...

Here we go again . . . already critiqued Schiff on another thread.

LOTS of people predicted stocks and housing would be down. Schiff had no monopoly on that.

Schiff's paradigm for his understanding of the fall in stocks and housing--foreign investors abandoning the dollar--is inapplicable.

Schiff said invest in gold for 2008 . . . how would that have done?

Would Schiff have predicted that one of the best investments (in relative terms) for 2008 would be long-term Treasuries? Would he have predicted that the dollar would gain about 20% on the Euro (and who knows how much more it would have appreciated without the Fed's currency swaps) at the peak of the financial crisis? His paradigm can't fit either of these facts.

Unknown said...

The amounts owned by Social Security and Medicare could be simply solved without raising taxes.

For Social Security, just raise the retirement age as the funds contributed by Gen X and Gen Y fall.

For Medicare, just raise the age of entitlement from age 65 where it is now (e.g. right away, since Medicare is currently in a deficit).

Since this is all pretty much predictable from an actuarial point of view, these two steps could be made TODAY thus erasing most, if not all, of the projected budget deficit.

The only problem is this Congress does not have the guts to tell baby boomers they are going to have to work to age 72 instead of 65-66-67. This current Congress is going to let some future Congress do that.

Gutless wonders. Does Obama have the guts or is he a gutless wonder like the rest of them.

Anonymous said...

Umm, can we have something - anything - factual to back up your smears? Oh wait, that's right - you're the moron who laughed at Peter Schiff for predicting that house prices would fall...or is that a different Mike Norman?

At any rate, we'll see in short order how well we can 'consume' our way out of the mess that overconsumption has got us into.

Anonymous said...

i didn't know you were still relevant... do enjoy old youtubes of schiff whomping on you though!

majestyx said...

"LOTS of people predicted stocks and housing would be down. Schiff had no monopoly on that."

That may be so, but Mike's the one who laughed on camera at Schiff stating it. It doesn't change the fact that Mike (and many other market cheerleaders) was still wrong, so what's your point? My point, and others as well, is credibility.

"Schiff said invest in gold for 2008 . . . how would that have done?"

The one year change in gold (year over year as of this posting) is down 3.66%. Not bad considering how much housing, stocks and commodities are down. Gold is PRESERVATION of wealth. And if you are in any country other than the US or Japan, your gold would be worth a lot more than it was a year ago.

"Would he have predicted that the dollar would gain about 20% on the Euro (and who knows how much more it would have appreciated without the Fed's currency swaps) at the peak of the financial crisis?"

Please, you know why the dollar has strengthened. The carry trade is unwinding, deleveraging is taking place worldwide, redemptions in not only hedge funds but plain old mutual funds as well. EVERYTHING is being sold...except the yen. What is your view on the economic conditions in Japan? Must be stronger than even here in the US based on your logic. Oh wait, there's that carry trade unwind once again.

Before I forget - living beyond ones means would be defined as SPENDING MORE THAN YOU MAKE. Is it truly that difficult to comprehend? That is not to say EVERYONE as individuals has done this, but the US government certainly has.

The tax argument makes absolutely no sense regarding inflation and demand for dollars.

While you're at the St Louis Fed site, take a hard look at the monetary base chart and then tell us all with a straight face that will NOT cause inflation somewhere down the road.

Unknown said...

Majestyx - Thank you. Your bang on!. You saved me the typing.

STF - "Finally, if we didn't pay taxes, then the currency would be worthless."
You've got to be kidding. That is the most ridiculous thing I have ever heard! We had a currency long before there was such a thing as income tax!
Yes Peter Schiff was not the only person who accurately predicted the financial crisis we are now in, but the point is that Mike Norman was so off base that he laughed at Mr. Schiff. Would Mr. Norman laugh in Jim Rogers face (he also called this disaster long ago). Jim Rogers bank account laughs at Mike Norman.

STF said...

Overall, too ridiculous to waste much time commenting. But . . . briefly . . .

Regarding Schiff, listen to Mike's show today (11/25), part 3. No more to say.

Regarding taxes and demand for currency, two things . . .
1. US fed govt spent $2.9 trillion last year. If there were no taxes, what would the currency be worth in that case? Would you want to hold it? Argument (and history of tax driven money) doesn't require an income tax; there's never been any form of a working monetary system that didn't have some type of reflux (for good reason).

2. Tax payment in the US is not fully discharged until taxpayer's bank debits its reserve account. Can't purchase Tsy security unless purchaser's bank debits its reserve account. Balances in reserve accounts are created when (1) govt spends more than it taxes, (2) Fed purchases securities left from previous deficits, (3) Fed lends balances to a bank. In other words, the "funds" to pay taxes or buy securities necessarily come from previous govt deficits or from a loan from the central bank. Disagree if you please . . . while you're at it, go ahead and disagree with gravity and believe the sun revolves around the earth.

Regarding the monetary base growth, the money multiplier framework is only applicable under a gold standard or currency board. Even within that framework, current rise is not necessarily inflationary since it's offsetting a massive decrease in velocity. Could go into much more detail, but not much point.

Matt Sherman said...

It's puzzling that "I.O.U.S.A." is being considered for such a high honor when it does such a poor job of investigating the issue. The film is great fodder for libertarians and deficit hawks, but it completely ignores one of the most powerful solutions to the long-term deficit: health care reform. If our health care system were anywhere near as efficient as other industrialized nations, then our deficit would disappear in the long-term. Also, at a time when our economy needs a big (deficit-expanding) stimulus to prevent a deepening recession, I.O.U.S.A. will also have the misfortune of bad timing.