Saturday, August 25, 2012

Whose Interests Will the Fed Always Protect? by Gary North

Whose Interests Will the Fed Always Protect? by Gary North
Some predictions are easy. Here is mine: "The government of the United States will default on the vast bulk of its debts, which are mainly debts of Medicare, and to a far lesser extent, Social Security and the federal pension system."
This prediction is easy to make when you have Professor Lawrence Kotlikoff of Boston University doing your research for you . . . free of charge.
He and long-term financial columnist Scott Burns recently wrote an article on the unfunded liabilities of the United States government. The article is based on the figures produced by the Congressional Budget Office. Here is their assessment. Over the past year, the debt of the United States government increased from $211 trillion to $222 trillion. This is the fiscal gap.
The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.
This led to their policy analysis.
Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent.
This sounds good, but neither one will work. I think they know this.

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