3 ms·

Credit Suisse: America Is Not Broke (Understanding The Modern Monetary System)

18 points by espeed 16y ago

espeed 16y ago
A quote from the article... “Some of our senior politicians and market pundits say it every day: “America is broke.” "We wonder if this is meant to be a joke. America is not even close to being broke. Household net worth is $57T. Public government debt – including the state and local sector – is about $12T. If we consolidate balance sheets to reflect the fact that the household sector is ultimately responsible for repaying this debt we arrive at a household net worth of $45T or 303% of GDP. This is at the high-end of the historical norm of 250- to 300% since the data began in 1952. The current level was surpassed only in the recent tech stock and housing bubbles."
- cletus 16y ago
  And the 2011 Federal budget is estimated to be [1]: Revenue: $2.17T Expenditure: $3.82T Deficit: $1.65T So, $12T public debt aside, it's growing at a rate of about 12% per year, the government is spending almost twice as much as it's bringing in and much of that expenditure is mandated rather than discretionary. This doesn't even account for other debts the US government, such as the Social Security debt of current and future retirees. Something has to give and there is no political will to do it. I see two likely outcomes: 1. Raising the retirement age to 70 or even higher; and 2. Introducing a national consumption (sales) tax. [1]: http://en.wikipedia.org/wiki/2011_United_States_federal_budget http://en.wikipedia.org/wiki/2011_United_States_federal_budg...
  - espeed 16y ago
    See the discussion here: http://news.ycombinator.com/item?id=2476584 http://news.ycombinator.com/item?id=2476584
  - ender7 16y ago
    Sales taxes are a really inefficient way of raising money. More specifically, you end up extracting most of your income from the poor and the middle-class, rather than the wealthy. We already have a fair way of levying a tax - it's the proportional income tax and it's done just fine in the past. You'd be amazed how those numbers change if you remove the Bush tax cuts from the budget (or, even more shocking, go back to Reagan-era income tax levels). I, for one, would rather raise taxes to their old levels than do away with government services that I value and that my friends and family depend on. My salary is pretty damn healthy - I would be "unfairly" taxed at a high bracket. That's the way it should be.
- sandee 16y ago
  Back in 2009, it was estimated that t Total US financial obligation is around 65 Trillion. Recently i read somewhere that the figure is excess of 100 Trillion now ! src: http://www.wnd.com/index.php?fa=PAGE.view&pageId=88851 http://www.wnd.com/index.php?fa=PAGE.view&pageId=88851
noahl 16y ago
I've been trying to track down the original source and I can't find anything. Google returns a bunch of copies of that article, but nothing that's actually from Credit Suisse. This search is the most important, I think: http://www.google.com/search?q=site:credit-suisse.com+not+even+close+to+broke http://www.google.com/search?q=site:credit-suisse.com+not+ev... You'll notice it turns up nothing like what the article claims. I didn't see anything on Credit Suisse's press release page, either: http://www.credit-suisse.com/news/en/ http://www.credit-suisse.com/news/en/ This sounds interesting, but I'd like to see the source they got it from.
- espeed 16y ago
  Here is info on the author Cullen Roche (http://seekingalpha.com/author/cullen-roche http://seekingalpha.com/author/cullen-roche), and here is a discussion of the article on Business Insider (http://www.businessinsider.com/credit-suisse-america-is-not-even-close-to-being-broke-2011-4 http://www.businessinsider.com/credit-suisse-america-is-not-...). The Credit Suisse research report may not be public.
espeed 16y ago
And it links to this (http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s...)... REP. HENRY WAXMAN: Do you feel that your ideology pushed you to make decisions that you wish you had not made? ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact. REP. HENRY WAXMAN: You found a flaw in the reality… ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working? ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
- rayiner 16y ago
  Wow I thought you were trolling and quoting the matrix.
  - espeed 16y ago
    You can watch the exchange here: http://www.youtube.com/watch?v=R5lZPWNFizQ http://www.youtube.com/watch?v=R5lZPWNFizQ
TomOfTTB 16y ago
This is willful blindness masquerading as well thought out analysis. The assertions here would be true if we had a system that said people who lived in the United States when the United States ran up these crazy debts are still responsible for paying those debts even if they move away from the United States (or move their wealth out of the United States which is essentially the same thing). But we don't have that system and people are moving elsewhere. This isn’t a hypothetical scenario. There was an article posted on HN today where Warren Buffett was essentially moving his wealth elsewhere (or "Betting against the dollar" as the article put it). So this is already happening. Yes, right now the value of all the wealth U.S. residents have is way more than the debt. But as the Government tries to take more of it from wealthy private citizens and corporations those people will start finding ways to move that wealth elsewhere. Once wealthy private citizens and corporations start to move elsewhere the middle class will start to lose their jobs or get paid less. Which will cause the wealth that can’t be moved to diminish and leave the U.S. with a bunch of debt and citizens who can’t pay it. The Credit Suisse analysis depends on the U.S. always being the richest and most desirable place to live but that’s not a guarantee. On a side note it's also relevant that the Rich always find ways to subvert taxes. Look here: http://tinyurl.com/93jbf http://tinyurl.com/93jbf. While the point of the article is the debt pay attention to the revenue. You'll see Tax revenue remains remarkably stable. Even though there was a 90% tax rate at the beginning of the chart.
- espeed 16y ago
  There is more to it than that -- read the article it links to about "Understanding the Modern Monetary System" (http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s...). "Government deficit spending and tax collection should be maintained at a rate that does not impose financial hardship on the private sector. Because the Federal government is not a state or household it should not manage its balance sheet for its own benefit. Rather, taxes and government spending should be managed in a way that most benefits the private sector and encourages private sector prosperity." "The key takeaway here is that the government balance sheet is not like a household or a state. It does not finance spending via revenues or debt issuance. The US government, as a monopoly supplier of currency in a floating exchange rate system never really has nor doesn’t have money."
turbojerry 16y ago
This bit should worry anyone in the US- "Household net worth is $57T. Public government debt including the state and local sector is about $12T." Private wealth != government income, unless one assumes that outright confiscation will occur. Even then going forward US total liabilities are even more than $57TN and the $57TN figure has grown that large due to QE to keep the banking system going. The fact that Credit Suisse cannot do a better job of obfuscating reality either means they are stupid, which I doubt, or more likely that is the best they can do to massage the figures, which bodes ill for the near future.

18 points by espeed 16y ago

A quote from the article... “Some of our senior politicians and market pundits say it every day: “America is broke.” "We wonder if this is meant to be a joke. America is not even close to being broke. Household net worth is $57T. Public government debt – including the state and local sector – is about $12T. If we consolidate balance sheets to reflect the fact that the household sector is ultimately responsible for repaying this debt we arrive at a household net worth of $45T or 303% of GDP. This is at the high-end of the historical norm of 250- to 300% since the data began in 1952. The current level was surpassed only in the recent tech stock and housing bubbles."

cletus 16y ago
And the 2011 Federal budget is estimated to be [1]: Revenue: $2.17T Expenditure: $3.82T Deficit: $1.65T So, $12T public debt aside, it's growing at a rate of about 12% per year, the government is spending almost twice as much as it's bringing in and much of that expenditure is mandated rather than discretionary. This doesn't even account for other debts the US government, such as the Social Security debt of current and future retirees. Something has to give and there is no political will to do it. I see two likely outcomes: 1. Raising the retirement age to 70 or even higher; and 2. Introducing a national consumption (sales) tax. [1]: http://en.wikipedia.org/wiki/2011_United_States_federal_budget http://en.wikipedia.org/wiki/2011_United_States_federal_budg...
- espeed 16y ago
  See the discussion here: http://news.ycombinator.com/item?id=2476584 http://news.ycombinator.com/item?id=2476584
- ender7 16y ago
  Sales taxes are a really inefficient way of raising money. More specifically, you end up extracting most of your income from the poor and the middle-class, rather than the wealthy. We already have a fair way of levying a tax - it's the proportional income tax and it's done just fine in the past. You'd be amazed how those numbers change if you remove the Bush tax cuts from the budget (or, even more shocking, go back to Reagan-era income tax levels). I, for one, would rather raise taxes to their old levels than do away with government services that I value and that my friends and family depend on. My salary is pretty damn healthy - I would be "unfairly" taxed at a high bracket. That's the way it should be.
sandee 16y ago
Back in 2009, it was estimated that t Total US financial obligation is around 65 Trillion. Recently i read somewhere that the figure is excess of 100 Trillion now ! src: http://www.wnd.com/index.php?fa=PAGE.view&pageId=88851 http://www.wnd.com/index.php?fa=PAGE.view&pageId=88851

noahl 16y ago

I've been trying to track down the original source and I can't find anything. Google returns a bunch of copies of that article, but nothing that's actually from Credit Suisse. This search is the most important, I think: http://www.google.com/search?q=site:credit-suisse.com+not+even+close+to+broke http://www.google.com/search?q=site:credit-suisse.com+not+ev... You'll notice it turns up nothing like what the article claims. I didn't see anything on Credit Suisse's press release page, either: http://www.credit-suisse.com/news/en/ http://www.credit-suisse.com/news/en/ This sounds interesting, but I'd like to see the source they got it from.

espeed 16y ago
Here is info on the author Cullen Roche (http://seekingalpha.com/author/cullen-roche http://seekingalpha.com/author/cullen-roche), and here is a discussion of the article on Business Insider (http://www.businessinsider.com/credit-suisse-america-is-not-even-close-to-being-broke-2011-4 http://www.businessinsider.com/credit-suisse-america-is-not-...). The Credit Suisse research report may not be public.

espeed 16y ago

And it links to this (http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s...)... REP. HENRY WAXMAN: Do you feel that your ideology pushed you to make decisions that you wish you had not made? ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact. REP. HENRY WAXMAN: You found a flaw in the reality… ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak. REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working? ALAN GREENSPAN: That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

rayiner 16y ago
Wow I thought you were trolling and quoting the matrix.
- espeed 16y ago
  You can watch the exchange here: http://www.youtube.com/watch?v=R5lZPWNFizQ http://www.youtube.com/watch?v=R5lZPWNFizQ

TomOfTTB 16y ago

This is willful blindness masquerading as well thought out analysis. The assertions here would be true if we had a system that said people who lived in the United States when the United States ran up these crazy debts are still responsible for paying those debts even if they move away from the United States (or move their wealth out of the United States which is essentially the same thing). But we don't have that system and people are moving elsewhere. This isn’t a hypothetical scenario. There was an article posted on HN today where Warren Buffett was essentially moving his wealth elsewhere (or "Betting against the dollar" as the article put it). So this is already happening. Yes, right now the value of all the wealth U.S. residents have is way more than the debt. But as the Government tries to take more of it from wealthy private citizens and corporations those people will start finding ways to move that wealth elsewhere. Once wealthy private citizens and corporations start to move elsewhere the middle class will start to lose their jobs or get paid less. Which will cause the wealth that can’t be moved to diminish and leave the U.S. with a bunch of debt and citizens who can’t pay it. The Credit Suisse analysis depends on the U.S. always being the richest and most desirable place to live but that’s not a guarantee. On a side note it's also relevant that the Rich always find ways to subvert taxes. Look here: http://tinyurl.com/93jbf http://tinyurl.com/93jbf. While the point of the article is the debt pay attention to the revenue. You'll see Tax revenue remains remarkably stable. Even though there was a 90% tax rate at the beginning of the chart.

espeed 16y ago
There is more to it than that -- read the article it links to about "Understanding the Modern Monetary System" (http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s...). "Government deficit spending and tax collection should be maintained at a rate that does not impose financial hardship on the private sector. Because the Federal government is not a state or household it should not manage its balance sheet for its own benefit. Rather, taxes and government spending should be managed in a way that most benefits the private sector and encourages private sector prosperity." "The key takeaway here is that the government balance sheet is not like a household or a state. It does not finance spending via revenues or debt issuance. The US government, as a monopoly supplier of currency in a floating exchange rate system never really has nor doesn’t have money."

turbojerry 16y ago

This bit should worry anyone in the US- "Household net worth is $57T. Public government debt including the state and local sector is about $12T." Private wealth != government income, unless one assumes that outright confiscation will occur. Even then going forward US total liabilities are even more than $57TN and the $57TN figure has grown that large due to QE to keep the banking system going. The fact that Credit Suisse cannot do a better job of obfuscating reality either means they are stupid, which I doubt, or more likely that is the best they can do to massage the figures, which bodes ill for the near future.