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Thread: Well - Duh!

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    God/dess Deogol's Avatar
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    Default Well - Duh!

    The United States is heading for bankruptcy, according to an extraordinary paper published by one of the key members of the country's central bank.

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    Banned Melonie's Avatar
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    Default Re: Well - Duh!

    ^^^ actually, it's a technical impossibility for the US Federal Gov't to ever go bankrupt. Unlike individuals, businesses, or state/local govt's, the US Federal Gov't has the power of the printing press available ... if they owe a trillion dollars, they can simply 'print up' another trillion dollars to pay the debt with !

    Prof. Koltikoff defines bankruptcy as follows ... " 'According to his central analysis, "the US government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds''." But the power of the printing press combined with the power of the official press are already on the path to solving this problem !

    Many authors have argued that last year's good ol' fashioned inflation rate i.e. the cost of buying the things that are needed to live a normal life, rose by somewhere around 9%. The gov't 'promised' recipients of Social Security, welfare, and many other social programs that their benefit checks would be increased to match the rate of inflation. But the kicker of course is that there is both the good ol' fashioned measure of inflation, and a gov't sanctioned official measure of inflation which is used to calculate increases in the size of benefit checks. By the gov't sanctioned official measure of inflation, which employs exclusions, substitutions, hedonic adjustments, weighting factors etc. it only increased by 3% last year (as did the benefit checks). This differential in effect cut the Federal gov't obligation to present and all future beneficiaries by 6%, since the size of next year's checks is based on the size of this year's checks times the gov't sanctioned official measure of inflation. Employing the power of compound interest in reverse, if this continues for 10 years the total Federal gov't obligation to existing beneficiaries will be cut in half !

    The Federal gov't also has the power to 'rewrite the rules' regarding new beneficiaries at any time. The 'official retirement age' when future beneficiaries of Social Security benefits can start receiving gov't checks has already been raised, and is likely to be raised again. Eligibility requirements for other social programs can easily be tightened at any future time, either directly or indirectly. This could be done as easily as removing the inflation adjustment from social program benefit eligibility thresholds, while allowing good ol' fashioned inflation or a legislated pay increase (i.e. increase in national minimum wage) to push the 'dollar value' of incomes slightly above the point of program eligibility. This could also be done as easily as a Supreme Court ruling or new legislation that only US citizens will be eligible for US gov't benefit programs.

    So far the lobbying power of the groups which would be affected by such changes is very strong, and the US gov't is still able to make monthly benefit payments, so no major changes have been proposed in the way of direct benefit 'cuts' or eligibility requirements. However, this could change abruptly in the future. In the meantime, the indirect benefit 'cuts' and eligibility threshold differentials continue to use the power of reverse compound interest to the govt's benefit.

    Of course the 'dirty little secret' behind the gov't printing new money to solve its debt problems is that the 9% rate of good ol' fashioned inflation also affects other Americans who are not benefit recipients. A 9% reduction in the purchasing power of their savings / retirement funds i.e. a 9% reduction in the actual purchasing power of the US dollar, is arguably equivalent to the gov't 'stealing' this money.
    !~
    Last edited by Melonie; 07-18-2006 at 05:03 PM.

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