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2019-01-02 06:00 by Karl Denninger
in Federal Government , 2336 references
[Comments enabled]  

I said NOW damnit.

 

12.4% tax for FICA, 2.9% for Medicare.

Total is 15.3%.  Of that 81% is FICA, 19% is Medicare.

The total in "Social Insurance and Retirement" taxes taken in (that is, the entirety) in the first two months of the fiscal year was $179 billion.  Of that $145 billion was Social Security tax and just $34 billion was Medicare tax.

Social Security paid out $167 billion.  That is more than $145 billion but there are bonds that are being cashed -- quite a lot of them in fact -- and the structural deficit for that program is $22 billion or 13% (that is, 87% of the payouts are offset by pay-ins.)  If you got rid of the disability scamming you'd close the gap materially; SSDI has paid out almost $24 billion in the last two months.

The point on Social Security is simply this and anyone saying otherwise is a damned liar:  A 13% structural deficit is fixable without a crazy amount of pain (either by lifting the salary cap, a 13% increase in the tax rate (to 14% total; 7 and 7) or some combination of the two, and that assumes no effort on reduction in disability scamming.)  Further, the load on the Social Security system from the boomers will start to fade as they begin to pass within the next 10 years.

MEDICARE, ON THE OTHER HAND, SPENT $129 BILLION BUT ONLY TOOK IN $34 BILLION.  IT HAS A 74% STRUCTURAL DEFICIT.  YOU WOULD HAVE TO QUADRUPLE, ROUGHLY, THE MEDICARE TAX TO BRING IT INTO BALANCE.

THE REAL OUTRAGE IS THAT TO THE MEDICARE FIGURE YOU MUST ADD MEDICAID WHICH MAKES IT MUCH WORSE AS THERE IS NO TAX FOR THAT COLLECTED AT ALL!  CMS (Centers for Medicare and Medicaid Services) HAS PAID OUT $270 BILLION THUS FAR THIS FISCAL YEAR AND WE ARE ONLY TWO MONTHS INTO FISCAL 2019!  THAT IS UP FIFTY BILLION OVER LAST YEAR'S RATE AT THIS TIME -- AN UNBELIEVABLE 24% INCREASE!  THE TOTAL SPENT BY CMS IS MORE THAN DOUBLE STRAIGHT MEDICARE SPENDING WHICH MEANS TO COVER IT ALL YOU'D NEED TO INCREASE MEDICARE TAXES NOT TO 400% BUT TO MORE THAN EIGHT HUNDRED PERCENT OF WHAT THEY ARE NOW.

While I suspect some of this increase was a result of game-playing with Treasury not paying people right near September 30th in an attempt to "cook the MTS" for the end of fiscal 2018 and thus "announce" a smaller deficit it is extremely unlikely that all of it can be attributed to that sort of gamesmanship.

There is no "entitlement crisis" in Social Security.  It is all in the medical side and it is going to bankrupt the nation and government both at the state and FEDERAL level unless it is stopped right here and now.

These are not my numbers or projections; they are the actual cash flow from the Treasury department.  They do not reflect what someone thinks will happen they reflect what actually has happened and is happening -- right here, right now.

The MTS is truth just as your bank statement is truth because the MTS, as a cash flow statement essentially is the Federal Government's check register!

You can tamper with asset values and you can make all sorts of projections and claims but if you have ever run, examined or done accounting for a business you know that cash flow is always truth.

Any media publication, "pundit" or politician who tries to spin this and claim that Social Security is a "difficult" part of it or that in some way they're connected must be pilloried and run out of town on a rail.  They are lying and intending to bankrupt you and this nation.  They are not only violating their oath of office they are deliberately destroying both you and the country as a whole.

If the government will not enforce the law (specifically, 15 USC Chapter 1), break all the medical monopolies and slay these jackasses with criminal prosecution immediately, driving medical costs down by 80% so the cash flow statement returns to something resembling balance then the only peaceful option remaining for the public is a full-on General Strike to compel the government to do so -- right here, right now, today and forevermore until the government takes that action.

The truth of the nation from a fiscal perspective is simply this: If the medical monopolist crap is not broken now fiscal collapse at local, state and federal levels is a certainty.  There is absolutely no possible way out of this box through higher taxes, cost-shifting, economic "growth", more borrowing or even all of them at once.  "Hide the sausage" games just flat-out don't work.

Time's up.

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2018-12-07 07:35 by Karl Denninger
in Federal Government , 340 references
[Comments enabled]  

So-cited the Daily Beast (which demands I let it run crazy-scam ads to view, so no linkey will be provided.)

The reference is to the debt at the federal level; Trump has been led to believe and has bought into the idea that "growth" can fix the problem.

He's not only wrong those telling him this are lying.  You need only look at the last fiscal year -- he got his "growth" but federal debt expanded at 6.2% of the economy, far beyond any rational target for GDP and also roughly double the actual realized GDP expansion.

Two exponentially-growing (that is, "x% per year" growth) things, where one exponent is larger than the other, will always blow up with the larger running away in a hockey-stick fashion.  This is trivially provable if you don't believe it in seconds using Excel or Google's Sheets.

It always happens -- exactly how quickly depends on the parameters, but that you will never get away with this is mathematical fact.

Sadly there is another fact in play, which is that the markets never let you actually hit the wall.  1929 was not the actual wall.  Neither was 2007.  Nor was 2000.  All three of these events occurred long before the actual mathematical wall was reached.  They happened because the market sussed out that all the game-playing was not going to be voluntarily curtailed, ever, and that the frauds embedded in that game-playing would continue forevermore.

In other words the inevitability of the outcome became apparent to the markets and it was that determination which, I remind you, is a purely psychological matter, that resulted in the crash.

If you remember the CEO of Citibank infamously said that while he knew the music would stop while it's playing you have to get up and dance.  The firm was nearly destroyed by doing this and many other banks were destroyed including Bear Stearns, Lehman, IndyMac, Washington Mutual, Wachovia and more.  General Motors only survived as a result of a massive, unfunded bailout by the US Government.  The market didn't go down "a bit" it lost roughly 2/3rds of it's value, a plunge only arrested when Congress literally threatened to legislate fraud and force it upon FASB, convincing them to allow fraud in accounting (specifically, asset "values") on a forward, permanent basis.

Absolutely nothing got actually fixed.  Nobody went to prison for said frauds.  The people who got reamed were the shareholders and, in some cases, bondholders.  They lost everything as a direct consequence of said frauds and there was no compensation for them.

There is a known, hard date out there of 2024.  I remind you from my previous article that by 2024 Medicare, which currently spends about $1,100 billion a year yet only takes in about $250 billion, will run out of Treasuries it can redeem with the US Treasury (and by doing so force the Treasury to issue same into the public market, since the US Treasury has no money and operates on a perpetual deficit.)  That this is going to happen, and when it does that Medicare will be short some 75% of what it is asked to pay, is a known fact.  That said event will occur approximately six years from now is also a known fact.  While the actual end date might move a year either direction or two that doesn't matter because once again the market never lets you actually hit the wall.

This specific problem is especially severe because unlike the housing market which was a few percent of the economy (and houses were not being sold at four times their value), and unlike the tech crash which was powered by a few dozen crazy stock market plays that had no real profit prospects this sector is 20% of the economy and the people over 65 really are spending the Medicare funds in hospitals, doctor offices and pharmacies.

It's not "loosey goosey" numbers on a screen as was the case in 1929 and 2000, and it's several times the size of the real economic impact from the housing mess.

There is no escaping this outcome -- a complete detonation of the federal budget and asset markets -- other than a dramatic and immediate reduction in the cost of health services and products.  Not "bending the curve", not tiny incremental changes worth a billion over 10 years or so (e.g. $100 million a year) but rather an across-the-board, immediate reduction in cost for everyone whether government or not in the health care space by about 80%!

In other words health care must be reset to be approximately 4% of the economy instead of the nearly-20% it is now and you cannot wait until the actual collapse in funding comes or you are going to kill at least ten million Americans when the checks bounce.

There are answers.  This sort of reduction in cost is not impossible and it doesn't mean throwing Granny down the stairs -- or in the hole.  However, it cannot happen if the collusive, monopolist practices now rampant are allowed to continue and are not met with proper sanction that has always existed under 100+ year old anti-trust law but that governments at the federal, state and local levels all refuse to enforce.

President Trump will not be "gone" before this all comes apart and destroys the economy and asset markets if he wins a second term.  He might manage to escape before it all goes to Hell should he be defeated in 2020 but even that is uncertain.  The problem with exponential explosions of this general sort is that very small changes in economic outcomes can accelerate the timeline dramatically because these timelines are always predicated on things continuing as they are -- that is, no recessions, no serious disruptions in the global economic environment and, quite-importantly, no wars that cut off resources or otherwise constrain commodities (like oil.)  For instance were we to have a recession in 2020 the odds of that causing an immediate acceleration such that Medicare blows up one or two years hence instead of four would be extremely high.  In turn the odds of the market deciding to not wait the two years to react would go to near-100% and what would otherwise be an ordinary market downturn and recession would likely turn into economic and market destruction worse than the 1930s.

No, Mr. President, you won't "not be here" when this happens.....

smiley

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Why aren't we talking about this?

 DatePublic DebtIntergovernmentalTotal
 09/30//201614,173,423,516,895.825,400,021,197,040.9719,573,444,713,936.79
-09/30/201513,123,847,198,347.81 5,026,770,468,136.52 18,150,617,666,484.33
Purchasing Destruction 1,049,576,318,548.01373,250,728,904.451,422,827,047,452.46

Remember, the actual "public" deficit is the difference in borrowing between the end of the fiscal year and the beginning in debt held by the public.  The total increase in debt, including intergovernmental (mostly Social Security and Medicare) is the actual deficit and is exactly equal, on an arithmetic basis, to the destruction in your personal purchasing power that the government causes (or gain if the government runs a surplus.)

The actual deficit -- that is, the destruction in purchasing power the federal government caused last year, is the percentage of 1.423 trillion .vs. the total GDP of 18.450 trillion or approximately 7.7%.

That's right -- the government intentionally destroyed almost 8% of your paycheck and your savings last year, running a $1.423 trillion dollar budget deficit, which is roughly equal to the worst of the "great recession" when tax revenues went through the floor.

Today there is no such "tax shortfall" excuse. 

The breakdown of exactly where the ugly is coming from will be published next week.  I already know what is in there because I've been following the monthly treasury statements all fiscal year, but wish to report final "as tallied" facts -- and thus will have another post at that time.

Let me be clear: On the arithmetic if we do not stop this now within the next 4-5 years -- that is, within the next Presidential term -- our government will collapse, our economy will collapse, our health care system will collapse and both the stock and housing markets will collapse.  This is not politics, it's arithmetic.  And the worst part of it is that I am utterly certain that the "references" count, along with the "views" count on this article will both be a fraction of the politically-oriented articles I've recently posted.  That the real end of our way of life in America, a threat that is obvious, mathematically certain, not very far in the future and yet avoidable if we act now fails to garner any sort of serious attention is the real outrage folks.

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A bit of the piece I wrote before got my mind going..... I hadn't actually sat down to think about this much (other than when Bill Still was running for the Libertarian ticket), and I bet you haven't either.

But we should.

I'm going to take just our Federal budget and break it down into the following general categories for Fiscal 2013, a year for which we have the Federal Treasury Statement:

Social Security: $870 billion

Medicare and Medicaid (All): $1,113 billion

Children and Families (TANF, Energy, Children and Family Services, Adoption, etc): $50 billion

HUD (Rent, projects, operating funds, etc) + "Community Planning": $45 billion

SNAP/WIC/Etc (Food Stamps & "Free" School Lunches): $109 billion

Veterans Affairs: $143 billion, of which about $52 billion is medically-related.  The rest is (mostly) pensions and readjustment benefits.

Ok, now let's add all this up, with one exception -- Military Pensions.

I get $2,239 billion, or $2.2 trillion dollars, out of a total as spent of $4.058 trillion -- roughly 54%.

Note that the deficit was $680 billion, or one third of that spending.

So let's just take our $2,239 billion and see what we could do with it, assuming we didn't have these programs at all. In other words, let's make a few assumptions:

  • Families in the lowest quintile of income (under $27,794) pay an effective tax rate of zero.  That is, their income (all sources, including benefit checks from the government) is all theirs to spend.

  • Families in the second quintile of income ($49,788) pay few taxes, with an effective rate under 20%. That is, if we remove the taxes the gross amount they'd have to "make" would rise by about $10,000 (what they pay in taxes.)

  • There are an average of 3.12 persons per family.  Since the US population is approximately 330 million, there are approximately 100 million family units ranging from a single person to five (where the bell curve flattens to near-zero) persons.  As these are quintiles this happens to divide out nicely; there are approximately 20 million families in each quintile.

Ok, so we're going to do this instead of the programs we have now:

  • We're going to enforce the Sherman and Clayton Acts vigorously against all in the medical field.  This will result in the cost of medical care plummeting by approximately 80%.  Doubt me?  Go price procedures and drugs in Japan, India and other nations where you can get first world, cash care.  Or, for that matter, price a procedure at The Surgery Center of Oklahoma.

  • We're going to delete all of these programs and benefits outlined above.

  • For the 20 million family units in the second quintile, we're going to give each a tax credit amounting to the 1/5th of the ratable difference between their family income and the $49,788 threshold.  There is an approximately $22,000 range in this quintile so the average household will receive $2,000. That will cost $40 billion a year.
     
  • For the 40 million family units in the first and second quintile we're going to give each a further refundable tax credit amounting to 100% of the funds necessary to reach the 1st quintile threshold (average for the first quintile is $14,000 @ 20 million people) plus, for those under $40,000, another $5,000.  This will cost (20 million * 14,000) + (35 million * 5,000) or $455 billion more a year.

Note that these two direct refundable tax credit disbursements result in nobody having a family income of less than approximately $32,000 after tax.  We spent $495 billion doing it.

Bluntly: If we do this there are no more poor citizens in America unless you care to argue that a $32,000 household income is "poor."  If you do then I'll preempt your statement by telling you that you're stupid and ought to go find a high building and jump, you ****er.

End of discussion.

We started with $2,239 billion that we whacked out of the budget and have spent $495 billion of that eliminating, on a permanent basis, poverty in America.

We have left $1,744 billion each and every year.  We will not run a deficit ($680 billion) any more, and in fact will run a $400 billion surplus on purpose to start paying down the debt.  We now have $764 billion left each and every year.

That $764 billion is roughly 40% of the remaining federal budget.  We therefore will cut all taxes, income FICA, Medicare, everything -- by 30% so as to bring receipts in line with actual spending.

The result of this is:

  • A balanced Federal Budget right now and, over the space of a few decades, a zeroed Federal debt.
     
  • I did not touch the military budget, nor any of the other departments.
     
  • Those who are in the lowest quintile of American life suddenly and permanently have a reasonably middle-class lifestyle.  There is no longer any argument over whether someone will starve irrespective of their economic circumstance, other than by choice.  There are no more poor citizens in America.
     
  • I have permanently stopped all fiscally-driven inflation, and thus destruction of purchasing power, since there are no longer deficits being run.  In fact we now see purchasing power increases over time of about 2.3% annually.

  • Those who are in the second quintile will see their after tax income effectively rise to their pre-tax income.

  • And everyone, from poor on up, will see a 30% reduction in all federal taxes and fees.

Note that I left a hell of a lot of Socialism in the Federal Government due to handing out money to the lowest two quintiles.  However, I got rid of all of the government waste and corruption at once in social programs by doing it this way, and as a result what has happened is that the people in the lower economic strata got all the money instead of a quarter of it with the various scam artists in and around the government stealing the rest.

I also broke the Medical Monopolies -- everyone can now afford to pay cash for their medical care.

And, I did it while cutting taxes across-the-board by 30% while not only balancing the budget immediately, not in 10 or 20 years in some phantasm of lies and fraud, but also while putting $400 billion a year toward retiring the debt.

We're not short on money in this country, nor on taxation.

We're short on integrity and people who argue otherwise are liars.

Argue with my math; if I missed something or made an error, show me where.

PS: Before the criticism commences, let me point out that I'm well-aware of adverse selection and the arguments that can be raised in support of it, including the fact that were we to do this we might end up with a lot of people in that first quintile by choice!  After all, $32,000 as a guaranteed household income is pretty good for doing nothing!

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