Credit Suisse: America Is Not Broke (Understanding The Modern Monetary System) | Hacker News Reader

Credit Suisse: America Is Not Broke (Understanding The Modern Monetary System)

pragcap.com

18 pointsespeed16 comments

And it links to this (http://pragcap.com/resources/understanding-modern-monetary-s...)...

REP. HENRY WAXMAN: Do you feel that your ideology pushed you to make decisions that you wish you had not made?

ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not.

And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

REP. HENRY WAXMAN: You found a flaw in the reality…

ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?

ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

Wow I thought you were trolling and quoting the matrix.

You can watch the exchange here: http://www.youtube.com/watch?v=R5lZPWNFizQ

I've been trying to track down the original source and I can't find anything. Google returns a bunch of copies of that article, but nothing that's actually from Credit Suisse.

This search is the most important, I think: http://www.google.com/search?q=site:credit-suisse.com+not+ev...

You'll notice it turns up nothing like what the article claims. I didn't see anything on Credit Suisse's press release page, either: http://www.credit-suisse.com/news/en/

This sounds interesting, but I'd like to see the source they got it from.

Here is info on the author Cullen Roche (http://seekingalpha.com/author/cullen-roche), and here is a discussion of the article on Business Insider (http://www.businessinsider.com/credit-suisse-america-is-not-...).

The Credit Suisse research report may not be public.

A quote from the article...

“Some of our senior politicians and market pundits say it every day: “America is broke.”

"We wonder if this is meant to be a joke. America is not even close to being broke. Household net worth is $57T. Public government debt – including the state and local sector – is about $12T. If we consolidate balance sheets to reflect the fact that the household sector is ultimately responsible for repaying this debt we arrive at a household net worth of $45T or 303% of GDP. This is at the high-end of the historical norm of 250- to 300% since the data began in 1952. The current level was surpassed only in the recent tech stock and housing bubbles."

And the 2011 Federal budget is estimated to be [1]:

Revenue: $2.17T

Expenditure: $3.82T

Deficit: $1.65T

So, $12T public debt aside, it's growing at a rate of about 12% per year, the government is spending almost twice as much as it's bringing in and much of that expenditure is mandated rather than discretionary.

This doesn't even account for other debts the US government, such as the Social Security debt of current and future retirees.

Something has to give and there is no political will to do it. I see two likely outcomes:

1. Raising the retirement age to 70 or even higher; and

2. Introducing a national consumption (sales) tax.

[1]: http://en.wikipedia.org/wiki/2011_United_States_federal_budg...

See the discussion here: http://news.ycombinator.com/item?id=2476584

Sales taxes are a really inefficient way of raising money. More specifically, you end up extracting most of your income from the poor and the middle-class, rather than the wealthy.

We already have a fair way of levying a tax - it's the proportional income tax and it's done just fine in the past. You'd be amazed how those numbers change if you remove the Bush tax cuts from the budget (or, even more shocking, go back to Reagan-era income tax levels).

I, for one, would rather raise taxes to their old levels than do away with government services that I value and that my friends and family depend on. My salary is pretty damn healthy - I would be "unfairly" taxed at a high bracket. That's the way it should be.

Back in 2009, it was estimated that t Total US financial obligation is around 65 Trillion. Recently i read somewhere that the figure is excess of 100 Trillion now !

src: http://www.wnd.com/index.php?fa=PAGE.view&pageId=88851

This bit should worry anyone in the US-

"Household net worth is $57T. Public government debt including the state and local sector is about $12T."

Private wealth != government income, unless one assumes that outright confiscation will occur. Even then going forward US total liabilities are even more than $57TN and the $57TN figure has grown that large due to QE to keep the banking system going. The fact that Credit Suisse cannot do a better job of obfuscating reality either means they are stupid, which I doubt, or more likely that is the best they can do to massage the figures, which bodes ill for the near future.

This is willful blindness masquerading as well thought out analysis.

The assertions here would be true if we had a system that said people who lived in the United States when the United States ran up these crazy debts are still responsible for paying those debts even if they move away from the United States (or move their wealth out of the United States which is essentially the same thing). But we don't have that system and people are moving elsewhere.

This isn’t a hypothetical scenario. There was an article posted on HN today where Warren Buffett was essentially moving his wealth elsewhere (or "Betting against the dollar" as the article put it). So this is already happening.

Yes, right now the value of all the wealth U.S. residents have is way more than the debt. But as the Government tries to take more of it from wealthy private citizens and corporations those people will start finding ways to move that wealth elsewhere. Once wealthy private citizens and corporations start to move elsewhere the middle class will start to lose their jobs or get paid less. Which will cause the wealth that can’t be moved to diminish and leave the U.S. with a bunch of debt and citizens who can’t pay it.

The Credit Suisse analysis depends on the U.S. always being the richest and most desirable place to live but that’s not a guarantee.

On a side note it's also relevant that the Rich always find ways to subvert taxes. Look here: http://tinyurl.com/93jbf. While the point of the article is the debt pay attention to the revenue. You'll see Tax revenue remains remarkably stable. Even though there was a 90% tax rate at the beginning of the chart.

There is more to it than that -- read the article it links to about "Understanding the Modern Monetary System" (http://pragcap.com/resources/understanding-modern-monetary-s...).

"Government deficit spending and tax collection should be maintained at a rate that does not impose financial hardship on the private sector. Because the Federal government is not a state or household it should not manage its balance sheet for its own benefit. Rather, taxes and government spending should be managed in a way that most benefits the private sector and encourages private sector prosperity."

"The key takeaway here is that the government balance sheet is not like a household or a state. It does not finance spending via revenues or debt issuance. The US government, as a monopoly supplier of currency in a floating exchange rate system never really has nor doesn’t have money."

That doesn't contradict anything I said. My whole point was the government will have to impose hardships on the private sector once the amount of debt gets too large to otherwise service. At which point people will start leaving.

Aren't most European countries more socialist than the United States and thus have higher tax rates, more workers rights and more social programs? Would wealthy citizens and corporations really move to one these countries? Correct me if I'm wrong but my inuition is that their taxes would be higher in Europe.

Where could a wealthy entity go?

To the free market paradise of Hong Kong (http://www.heritage.org/index/Ranking), maybe? Of course, who knows when the Chinese government ends that experiment, some risk assessment necessary there...

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