Posted on 01/17/2008 12:30:46 AM PST by america4vr
Moody's Investors Service voices concerns about the long-term creditworthiness of federal securities, citing exploding health care and Social Security obligations; Senator Clinton proposes a stimulus package that would expand entitlements to low-income Americans; Citigroup has to go abroad to find capital to cover losses that arose because of improper risk management: All these things are linked.
Mrs. Clinton's program fundamentally misses the underlying dilemma. Our short-term economic difficulties are the result of bad private risk management of financial portfolios; our longer-term predicaments are bad risk management of federal entitlement programs. Unduly risky portfolios of private investments have been funded; enormous unfunded liabilities are on the federal books. Additional spending will do nothing to solve either problem.
Health care and Social Security programs have added up to a clever Ponzi scheme ever since the New Deal, with young workers paying for the unfunded health and retirement obligations of their parents' generation. m.
(Excerpt) Read more at nysun.com ...
problem is- some will
yitbos
Fred Thompson has the solution to fix Social Security and Medicare.
We’ve been kicking the can down the road for too long, and it’s about to come back to kick our asses.
We need a candidate who can offer the right solutions for America’s economy, not a “me too” counter-proposal to Hillary’s plan like Mike Huckabee!
This is why Moody's apprehension hits Hillary the hardest.
This is why Moody's apprehension hits Hillary the hardest.
Look for a serious ramping up of inflation if we start”stimulating” the economy, especially with new or expanded “entitlements.” That is how governments welsh on their debts. Denominate the debt in dollars then shrink the dollars with which the debt is repaid.
Ultimately the government will inflate its way out of all its liabilities. It will work wonders for the government but will impoverish any Americans on fixed incomes and will hurt everyone else,too as the economy tries to cope and anticipate. Everyone will get poorer with more dollars.
At this point with the deficitrunning amok,projections that the New Deal welfare benefits, can not be sloughed off to the next generation,the inflation you mention combined with an economic toxic brew of a uncredit-worthy, down-trending currency losing global confidence, and then wham!the sneak/stealth shot below the belt as a result of exponentially-increasing demand/corresponding diminishing supply crisis of oil, whew, you’ve got the makings of a great disaster film.
But now, I would advise against looking into the rear view mirror as the whatever it is we've been running away from is looming larger and more ominous every moment.
The plan that has been put in motion is simple . . . in involves nothing more than the gross under-reporting of inflation on a year-by-year basis. Folks may have noticed that the Federal government has been reporting inflation rates of around 2.5% to 2.7% even as the prices for most of the necessities in our lives have increased at rates of 5%, 10%, or even more.
You think this is just a statistical anomaly? Of course not. This allows entitlement spending to increase at rates that don't even keep up with inflation over time, which means nobody gets a cut in their government hand-outs but eventually we'll notice that a government check that used to pay the rent can barely even cover the cost of a can of dog food.
“This allows entitlement spending to increase at rates that don’t even keep up with inflation over time, which means nobody gets a cut in their government hand-outs but eventually we’ll notice that a government check that used to pay the rent can barely even cover the cost of a can of dog food.”
Why is this a bad thing?
It's a bad thing if you are a Baby Boomer who acted responsibly by saving during your working years and who is now looking for a secure way to fund retirement. Dollar denominated investments are going to be hit very hard, with their purchasing value declining from year to year.
To the extent that the government does not simply print the dollars, businesses and other economic activity will have to be more heavily taxed, causing a reduction in such activities.
We know that the government will have to engage in some combination of these two approaches. Finding a way to maintain one's retirement security will involve trying to anticipate which way the government is headed.
Under your second e-mail, depending on how you invest, monetary inflation should not effect the relative value of your real investment. As the dollar inflates, the relative value of the investment should also. Thus, it will yield more inflated dollars and you maintain investment status quo.
Under your 1st e-mail, the purchasing power of “fixed” government payouts diminishes. This is, in my opinion, not a bad thing. It is a financial incentive for people to move off reliance on government handouts. That’s a good thing.
In an unchanging economic environment, that might be the case.
But the transition from a period of low inflation to one of high inflation presents some very serious challenges.
With 0% inflation, a reasonable price-to-earnings ratio for a given stock might be 16, representing an inflation adjusted return of about 6%.
As inflation increases, earnings might increase at the inflation rate,but the price of the stock must adjust to reflect a more reasonable price-to-earnings ratio. If inflation, for example, is 6%, then earnings rise 6%, but the price-to-earnings ratio for the stock must adjust such that the inflation-adjusted return is still 6%. That means that twice as much money must be earned, not just 6% more, in order for the stock price to remain constant.
The typical case is that the stock price cannot remain constant, but instead drops to one-half of its pre-inflation value, for a price-to-earnings ratio of 8, restoring the inflation-adjusted return of 6%.
Economics is not my field, and there may be more to take into account, but a government policy of inflation is certainly not free. Somebody pays.
I don't think it's such a bad thing at all!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.