Wednesday, November 28, 2012
This chart shows yesterday's close following Harry Reid's comment, and that the overnight futures have continued weak. Both the Dow and S&P 500 are below key benchmark levels. The Dow is trading below the 13000 level, and the S&P is trading below the 1400 level again.
Now we know who the REAL hostage-takers are of the US economy!
When Harry Reid, US Senate Majority Leader, commented yesterday that Democrats would not compromise on their demands for higher taxes or their demands for no entitlement reform, stocks plunged nearly 90 points within a few minutes.
Tuesday, November 27, 2012
Eighteen years later, nothing has been done. Why? The usual reason is that entitlement reform is the third rail of American politics. That explanation presupposes voter demand for entitlements at any cost, even if it means bankrupting the nation.
A better explanation is that the full extent of the problem has remained hidden from policy makers and the public because of less than transparent government financial statements. How else could responsible officials claim that Medicare and Social Security have the resources they need to fulfill their commitments for years to come?
As Washington wrestles with the roughly $600 billion "fiscal cliff" and the 2013 budget, the far greater fiscal challenge of the U.S. government's unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one.
But it hasn't. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury "balance sheet" does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.
As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government's true liabilities.
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Why haven't Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. Included in the annual Medicare Trustees' report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).
As of the most recent Trustees' report in April, the net present value of the unfunded liability of Medicare was $42.8 trillion. The comparable balance sheet liability for Social Security is $20.5 trillion.
Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities imply. Borrowing on this scale could eclipse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.
These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.
In exchange for the payroll taxes that aren't paid out in benefits to current retirees in any given year, the trust funds got nonmarketable Treasury debt. Now, as the baby boomers' promised benefits swamp the payroll-tax collections from today's workers, the government has to swap the trust funds' nonmarketable securities for marketable Treasury debt. The Treasury will then have to sell not only this debt, but far more, in order to pay the benefits as they come due.
When combined with funding the general cash deficits, these multitrillion-dollar Treasury operations will dominate the capital markets in the years ahead, particularly given China's de-emphasis of new investment in U.S. Treasurys in favor of increasing foreign direct investment, and Japan's and Europe's own sovereign-debt challenges.
When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.
Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.
In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.
Neither the public nor policy makers will be able to fully understand and deal with these issues unless the government publishes financial statements that present the government's largest financial liabilities in accordance with well-established norms in the private sector. When the new Congress convenes in January, making the numbers clear—and establishing policies that finally address them before it is too late—should be a top order of business.
Mr. Cox, a former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, is president of Bingham Consulting LLC. Mr. Archer, a former chairman of the House Ways & Means Committee, is a senior policy adviser at PricewaterhouseCoopers LLP.
Stocks declined sharply, then rebounded sharply. Back to flat for the day, just as occurred yesterday.
Answer: A LOT! Wheat has leaped higher today!
Only 33% of the winter wheat crop is on good condition.
25% of the winter wheat crop is already destroyed, and it's only November!
Here's the proof:
from Reuters today:
By Michael Hirtzer CHICAGO, Nov 27 (Reuters) - U.S. wheat futures jumped 1.5 percent to a two-week high on Tuesday as condition ratings declined to a record low ahead of the crop's winter dormancy, underlying supply tensions following a string of weather-affected harvests around the world. Corn and soybean futures also traded at the highest levels in about two weeks, with soybeans rising the third straight session and corn the second consecutive day, bolstered by month-end investment fund buying, analysts said.
Monday, November 26, 2012
Crop conditions for winter wheat in the U.S. declined for the fourth straight week and were the worst since 1985, the government said, as dry, cold weather slowed seed germination and early plant growth.
An estimated 33 percent of the crop was rated good or excellent as of yesterday, down from 34 percent last week and 52 percent a year earlier, the U.S. Department of Agriculture said today in a report. About 26 percent was in poor or very poor condition, compared with 13 percent a year earlier.
The worst U.S. drought since 1956 helped send wheat futures up 32 percent this year. About 56 percent of the six High Plains states from Kansas to North Dakota was in extreme or exceptional drought as of Nov. 20, up from 6.3 percent a year earlier, government data show. Plant emergence was 88 complete in the 18 top-producing states, compared with 91 percent a year earlier, the USDA said.
“The crop is already dying in some fields from the lack of rain,” Alan Brugler, the president of Brugler Marketing & Management Inc. in Omaha, Nebraska, said in a telephone interview before the report. “Crops survived the dry weather last year because there were surplus soil-moisture reserves. The crop is more susceptible to wind and cold damage this year because of the poor conditions.”