The Republicans are in trouble when they bring the lame duck Fed Chairman into the fight. Which fight is that?
Social Security. And the interesting thing about the remarks is that they make no sense at all.
Logic 404
"Increasing labor-force participation seems a natural response to population aging, as Americans are not only living longer but are also generally living healthier,"
But Labor Force participation is down, and staying down. Increasing labor force participation is only natural when there is a labor shortage. That is unless you want to drive wages down or generate inflation.
"We were confronted at the time with an almost universal expectation amongst experts that we were dealing with a very large surplus for which there seemed to be no end,"
Now, after dragging himself into the Social Security debate, admitting he has made a 10 trillion dollar mistake doesn't build much in the way of credibility. Now does it?
"I look back and I would say to you, if confronted with the same evidence we had back then, I would recommend exactly what I recommended then. Turns out we were all wrong".
We who kimosabe? Not only has he learned nothing, but clearly he can't listen. Senator Clinton pointed this out. Senators Conrad and Dorgan have special rights to be first in the "we told you so" reception.
""These projections make clear that the federal budget is on an unsustainable path in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years,"
And yet he hasn't called for tax increases. Instead he supports more borrowing.
So let's get this straight, the shorter Alan was "I was off by 10 Trillion dollars looking forward 10 years, I've learned nothing because I would make the same mistake today. And we are in such trouble with deficits that you are going to borrow more money because of a 75 year projection, and tell people to work longer when people who want jobs can't find work already."
This is fruitloop territory, not dealing with a full deck, the elevator isn't going all the way to the top, the spreadsheet has circular references...
So what is going on?
Social Security isn't a program - it is a revenue stream. And Bush/Greenspan/Rove and the rest need that revenue stream to prop up their devaluation game. They must have it. Not because Social Security is in trouble - but because it is not in trouble. The money from SS is pouring in faster than benefits are being paid out. That is the last pile of money on the budget - Iraq has run out as a funding source, they aren't getting another war, there is nothing to cut in nondefense discretionary spending. If they were worried about budget problems - they would be going after Medicare.
The real fight is over the global monetary system, and who controls it. Social Security is on the menu because Bush has run out of other places to borrow money. So, instead of offering unsecured debt (fed prints money), or debt secured by a hostile take over of Iraq (oil flows), he now has to find a way to tap Social Security in order to offer a secured loan - raid the revenues by cutting benefits, and borrow that money now.
That is what is going on here. It's really very, very simple. America sells paper to buy oil. Every dollar of trade deficit has to be made up by selling a dollar of assets - debt, stocks, real estate, patents. Right now the US is printing a lot of federal paper to buy ever more expensive oil. The game is to force global wages down by rapidly reindustrializing China, and pushing materials prices up. This will drive developed world wages down, squeezed between higher materials prices, and ever cheaper dollars. Bringing Iraq online would soften the blow, but not change the course.
Europe decided sometime ago to hold the line on wages, wiling, instead, to take higher unemployment and slower nominal growth to avoid higher materials prices. Since Europe imports energy and materials, and makes things with them, this makes perfect sense.
The question was always where would the Asian central banks fall in all of this. At first they followed the Federal Reserve and George Bush - bought federal debt, stayed in the dollar, capitalized their banks in dollars and allowed their currencies to fall. Japan, in particular, thought that in a high energy environment, their energy dense economy would have significant advantages. Problem is It isn't working out.
Instead, over the course of 2004, India, Korea, Japan and Indonesia began limiting their exposure to dollars, and Europe began finding ways to dig in for a long conflict between the Federal monetary policy and their own. For example, looking to bring Africa online as a source of food and goods: which would allow them to reduce agricultural subsidies, and therefore have enough money under Maastricht for stimulus and unemployment benefits.
The US is responding by squeezing OPEC to pump oil as fast as possible, hoping to keep the price down at "the simmering frog point" of about $50 dollars a barrel. However, even the IMF admits that $80 is not out of the question. This level is high enough not to slow global growth signficantly - in will in fact increase pressure to ship more and more work to China, to keep wages down. However, with no slack capacity in OPEC, $80 may become the sustained level of oil cost.
OPEC, for its part, wants prices as high as possible, without getting Western nations to leave the oil standard. Therefore, as the production central bank, they are being accomodative, and hoping this all works out.
So how does this play out?
There are two possibilities:
- The US/OPEC/China triumvirate runs out of either money to borrow or oil to pump.
- The recessionary pressures on Europe, Japan and Korea force them to significantly ease their monetary policy, and wages in these nations meltdown as their currencies equalize with the deflated dollar.
Japan is in the worst shape - it can only ease by a fiat devaluation of the Yen, closing half the banks in the country and accepting dramatically lower living standards. One reason they went along with Bush is that the pain of higher interest rates seemed unbearable, and an import hungry America offered a way to gradually clean out the financial system.
Europe can hold out for at least another year as the core Eurozone economies hover above recession. Their challenge is to get Russia pumping oil, denominated in Euros, and Africa growing food, denominated in Euros, and South America manufacturing and developing oil denominated in Euros. This would create a Europe/Russia/South America-Pac Rim bloc that would have enough access to energy, food, materials and consumer demand. It is a very dangerous road, but one that requires, paradoxically, generosity - writing off third world debt so that those nations can borrow to build new industry and farms, ending ag subsidies, and propping up those caught in the slow down.
The current government of the United States has about three more years of money to tap - that is why Uncle Alan says we should have a deadline of three more years, because they have to have the money from looting social security before then.
This conflict resembles the conflict described by Dr. Temin of MIT when the world was going off the gold standard: the United States, at that time under FDR, held the line on wages - and took high unemployment as a result. Nazi Germany and the other dictatorships slashed wages, and therefore unemployment. Leaving aside the judgments about governments - the same conflict is now operating.
The clock is running, and the problem with the current executive branch's foreign and economic policy is that it is no longer coherent, even in broad brush terms: it requires people believe that tax cutting in 2001 was a good idea, or that the people who couldn't get 10 years right are infallible about 75 years, or that people who are leaving the work force will come back for lower wages - and on top of one of these absurdities, that no one could have done any better.
As someone who has watched a CEO on their last legs, defending bad decisions - the last line of defense is "no one could have known". It is the lamest of excuses, because the share holders say "we paid you a ton of money to know, if you didn't know then you shouldn't have taken the job".
Greenspan's performance yesterday, and the economic numbers - particularly OPEC only being able to find another 500K barrels a day - roughly six months growth in demand - says that we are reaching that point now. Either the windfall that Bush and his cronies have hoped for comes. And every indication is he intends to push the world all the way to the bring of financial disaster.
But given that Asia is gradually moving towards the European position, South America is looking for a way out, and Japan is running out of patience, it seems unlikely that, unless the mafia shows up, the duck is going to win this cock fight.