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Alan Simpson Exposes Republicans’ Anti-Social Security Agenda Behind Obama’s Deficit Commission

3:53 pm in Uncategorized by Scarecrow

When Peter Peterson’s anti-Social Security propaganda organ, Fiscal Times, openly criticized Alan Simpson for his insulting comments to Alex Lawson, calling Simpson "condescending and derisive–and wildly wrong about important parts of the Social Security system’s past," I suspect they were worried about a lot more than Simpson’s typical bullying tactics or even another self-disqualifying "macaca moment."

In throwing Alan Simpson under the bus, the Peterson gang apparently fears that when Simpson blurted out a widely shared but easily refuted Republican misrepresentation that the Social Security Trust Fund was "broke," near bankruptcy, he exposed their agenda to undermine the most important social safety net in America. What Simpson revealed is an agenda that can be explained only in terms of having the US Government effectively default on the US bonds held by the Trust Fund without calling it a sovereign default.

In other words, Simpson has now exposed not only himself, but likely most of his fellow Republican commissioners, as well as the Commission’s Peterson-dominated staff, as being so fundamentally confused (or dishonest) about Social Security, and the contrived relationship between an otherwise healthy Social Security system and the long-run federal deficit, that they have no business being on a commission of "serious people" asked to solve the long-run US deficit problem.

And if that now exposed agenda is not what the Obama Administration had in mind for its Commission on Fiscal Responsibility, it had better replace not just Simpson but the whole gang of his confused buddies before they do severe damage to the credibility of US finances.

Paul Krugman zeroes in on Simpson’s "zombie lies," but bear in mind that Simpson’s views are widely held throughout the Republican Party, including Republican members of the Commission:

Specifically, Simpson has resurrected the old nonsense about how Social Security will be bankrupt as soon as payroll tax revenues fall short of benefit payments, never mind the quarter century of surpluses that came first.

We went through all this at length back in 2005, but let me do this yet again.

Social Security is a government program funded by a dedicated tax. There are two ways to look at this. First, you can simply view the program as part of the general federal budget, with the the dedicated tax bit just a formality. And there’s a lot to be said for that point of view; if you take it, benefits are a federal cost, payroll taxes a source of revenue, and they don’t really have anything to do with each other.

Alternatively, you can look at Social Security on its own. And as a practical matter, this has considerable significance too; as long as Social Security still has funds in its trust fund, it doesn’t need new legislation to keep paying promised benefits.

OK, so two views, both of some use. But here’s what you can’t do: you can’t have it both ways. You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government — but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.

And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out.

So what does it mean that the co-chair of the commission is resurrecting this zombie lie? It means that at even the most basic level of discussion, either (a) he isn’t willing to deal in good faith or (b) the zombies have eaten his brain. And in either case, there’s no point going on with this farce.

The notion that Social Security is essentially bankrupt and a growing deficit burden is a common Republican framing. For years they’ve been using the same zombie lie to attack Social Security and move billions into privatized accounts managed by Wall Street. They alternate between calling Social Security "broke," "bankrupt" or "insolvent" and (Jim Coburn’s favorite) a "burden on our grandchildren," to John McCain’s calling it a "ponzi scheme."

But in reality, Social Security is NOT in deficit nor a contributor to long-run deficits. It has a huge surplus now and there’s no basis for framing whatever adjustments may be needed to sustain the Trust Fund as having anything to do with long-run budget deficits. And none of these people who are confused (or lying) about that should be allowed anywhere close to a serious Commission trying to solve a long-run deficit problem.

Yet Peterson’s hired analysts have spun the same tales. Here’s the Fiscal Times’ George Hager, just two months ago, with another version of the Republican zombiism that there’s not enough money left:

It’s comforting to think that Social Security is humming along nicely with money to spare, but that’s an illusion. The only way Social Security will stay in the black this year is by borrowing $29 billion to make up the shortfall between its real income and its expenses. . . .

But the point is that we’re deluding ourselves about Social Security’s finances. The far more dangerous delusion is that the trust fund’s $2.5 trillion in accumulated assets means we don’t have to worry until 2037. By then, Social Security will be devouring huge chunks of general revenues to stay afloat. The trust fund may be a moral and political obligation, but it’s not real money.

What is he talking about? In 1983, Congress agreed with the "Greenspan Commission" to raise SS taxes and begin "pre-funding" Social Security in anticipation of the baby boomers. Since then, the Trust Fund has been building a huge surplus, now at about $2.5 trillion. As the baby boomers retire, it will gradually use that surplus, plus continuing payroll taxes, plus interest on the US bonds it purchased with the surplus, to pay full benefits in coming decades. Eventually (2037 or 2044 or later), it may need more revenues to continue paying full scheduled benefits in later decades, depending on what happens with economic growth, interest rates, etc. But its structure is basically sound for decades to come.

Republicans and Peter Peterson’s hired guns don’t want you to know that. They want you to think Social Security is in some "crisis" and somehow related to or causing the deficit. It’s not. The Hager article, for example, says interest on the bonds shouldn’t count as part of the funds Social Security has available to pay benefits. That’s like saying the interest you’ve been earning on your retirement or savings account doesn’t belong to you. But that money clearly belongs to the Trust Fund, because the Trust Fund owns the US bonds earning that interest. That’s how Congress set it up. And the fact the US may have to raise money through some means — taxes, borrowing, printing, etc — to pay that interest or pay when the bonds are cashed in, isn’t a problem with the structure or solvency of Social Security.

But to the Peterson gang, "it’s not real money." What the real money denialists claim is "not real money" is the interest on US government-issued bonds (or even the bonds themselves) which are backed by the full faith and credit of the US government. As Dean Baker has written, those bonds and the interest they earn are as good as any other US bonds . . . unless the Peterson crowd convinces everyone "it’s not real money" — just "worthless I.O.U.s" — and encourages, in effect, the US to default on these bonds. To even suggest this is a dangerously irresponsible notion.

It’s not enough to just replace Alan Simpson, as some groups like MoveOn.Org are now demanding. He’s just the guy who blurted out the zombie lies that other commission members hoping to cut or privatize social security and Peterson support. The whole gang of zombies needs to go.

This weekend, the White House Chief of Staff went on ABC’s This Week to call out Republicans for siding with BP over US taxpayers. That issue, he argued, clarifies the difference between the parties, and we should go to the country on that difference. Okay. What about the zombie lie that the Social Security Trust Fund "is not real money"? Let’s take that one to the voters too.

Shouldn’t a commission assigned to examine long-run deficits have a coherent, reality-based view of Social Security? About what’s real and what isn’t? And shouldn’t that commission be composed of serious people who are not confused or disingenuous about some made up connection between the soundness of the Social Security System and the real causes of long run deficits — like rising health costs, such as paying non-competitive drug makers too much for drugs?

With help from the Peterson gang, Alan Simpson and his friends have shown much of Deficit Commission is more a group of clowns than serious people capable of dealing with serious issues. And the Administration has made a huge blunder assigning such an important issue to a gang of ideologically driven reality deniers and expecting them to come up with a worthwhile solution to long-run deficit issues.

More:
Brad DeLong: Obama’s appointing Alan Simpson to co-chair the deficit commission was really big mistake Quoting Krugman, DeLong adds:

And it simply makes no sense whatsoever to claim that the system is "insolvent" as soon as benefits exceed Social Security taxes. . . .

You don’t name an arsonist to co-chair your fire department. If Obama wants his commission to do anything, he needs to replace Alan Simpson with a reality-based co-chair.

Paul Krugman, Zombies have already killed the deficit commission; Mark Thoma agrees.

Dean Baker, America Speaks Back: Derailing the drive to cut Social Security and Medicare; also, Will it go round in circles? Alan Simpson and the Social Security Trust Fund

Naked Capitalism, good background video with Tom Ferguson discussing Commission and Peterson conference on deficits.

David Dayen, Calls for Washington Post to end content sharing agreement with Peterson’s Fiscal Times

Why Is There Even a Question About Auditing the Fed After it Failed So Badly?

2:56 am in Uncategorized by Scarecrow

Sometime Tuesday the Senate may take up Bernie Sanders’ amendment to the Senate financial reform bill. It would require the Government Accounting Office (GAO) to conduct an audit of the operations of the Federal Reserve. The outcome is much in doubt, but it shouldn’t be.

Current and past Fed officials, who have much to answer for, are naturally opposed, as is the Obama Administration, which has become the champion for government non-accountability. They’re joined by Wall Street and the big bankers’ Senate apologists. It is a sorry spectacle.

The principle that government agencies should be transparent and publically accountable is a cornerstone of democratic, responsive government, which is why those who favor plutocracy, let alone kleptocracy, find the concept so threatening. But the US financial sector and its governmental partners have for decades assiduously promoted the view that the Federal Reserve should be exempt from scrutiny, because, they claim, otherwise its "independence" would be as risk. Never mind that the dangers a nation’s economy faces can as easily come from the Fed’s co-dependency with the nation’s largest, irresponsible banks when coupled with a market ideology that encourages fraud and looting. If ever there was a sector that needed sunlight, this is it.

We’ve learned over the last two years the boys at the Fed just aren’t as smart as they claim but are too arrogant and conflicted by regulatory/ideological capture to admit it. So if we have to have a Fed, we have to figure out how to oversee it and keep it focused on the public interest and not solely the banks’ interest.

If it wasn’t clear already, the recently released transcripts of 2004 meetings of the Fed’s Open Markets Committee reveal they were shown clear evidence of a dangerous housing bubble in early 2004 — when they still had a window to let an overheated sector down easy and prevent the great crash. But they not only failed to take it seriously, they accepted the view that they, and only they, understood what’s going on and shouldn’t let anyone else know.

Here’s Alan Greenspan, from the Spring of 2004, a period when a competent, vigilant bank regulator might have realized we were experiencing a disturbing housing bubble and needed at least to raise a warning if not to start deflating it:

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."

Whereupon, the Oracle suggested they take a coffee break rather than do their jobs and apparently everyone nodded in agreement. We can now expect a flurry of reports on all the times Greenspan said "there’s no problem," "buy homes," and "no one anticipated," or "no one said anything," even though they clearly did.

The folks at Calculated Risk, Ryan Grim, Naked Capitalism, a must read, Matthew Yglesias, Paul Krugman and others are now all over the 6-year old transcripts. By law, the Fed was supposed to release transcripts for all of 2004, but it only released the first half and is withholding the second half until next year. You’d think that with Congress struggling to figure out how to reform the system, and the Financial Crisis Inquiry Commission directed to produce a report by December, the Fed would be releasing everything up through 2008. And they can throw in the e-mails between the Fed, Treasury, AIG, Goldman and friends. This is what subpoenas are for.

Assuming one accepts that on matters of monetary policy an economy needs an elite group of qualified grownups in charge of the money supply, and because of the significance of what they do they need to be at least somewhat shielded from the nutwing politics we have today, it’s hard to believe they need five years of secrecy and can’t handle periodic audits by one of the most responsible agencies in the US Government.

Dean Baker lays out the straightforward case for a thorough audit and shining some light on an institution whose complete failure led to the worst economic recession since the Great Depression. Like most Americans, he wants to know what Ben Bernanke did with all that money — who got it and what we got in return. That’s important, but we should also be asking whether it’s reasonable to expect this structure to do the job they’ve been given. After all, if the institution utterly failed, why isn’t its structure or composition a major issue in reform?

Yglesias picks up on the tone of the Fed meetings and the incurious quality of the questions from Fed members. What that says to me is these folks were not ideologically inclined to want to know more. Markets correct themselves, and fraudulent operators lose market share, right? How could they have been so delusional?

The argument for a responsible audit process should be a slam dunk, but unfortunately, the case is not helped by Rep. Ron Paul (and to a lesser extent, Rep. Alan Grayson), the sponsor of the House version. Paul doesn’t want a competently run Fed; he wants to abolish the central banker and eliminate it’s printing of money, without explaining how the system would work, how one implements stimulus spending during the recession or keeps the economy afloat during a credit crisis. Neither can imagine why the banker for one country in an interconnected world might need to rescue banks in another country. Would he rather we were Greece?

Senator Bernie Sanders, who’s pushing the audit amendment in the Senate, presumably has more sense, and Paul’s nuttiness shouldn’t detract from the underlying principle. An agency of the US Government (and it’s bank-dominated affiliates) should be far more accountable and transparent, especially when its most recent Chairs and governors have proven to be so incompetent and devastatingly wrong. They diddled with charts while the banks they were supposed to oversee looted the country and put 11 million people out of work. Not auditing that failure is a coverup.

More:
Dean Baker, Audit the Fed. What did they do with our money?
HuffPost/Ryan Grim, Greenspan wanted housing bubble dissent kept secret
Calculated Risk, Fed discussed possible housing bubble in 2004
Matthew Yglesias, Is our Fed Governors learning?
Calculated Risk, More Fed bubble talk in 2004
Naked Capitalism, Yves Smith and Tom Adams, The Fed thumbs its nose at the public
Paul Krugman, Bubble Denial
TPM/Buetler, Pelosi: Bush Admin barred officials from briefing Congress on financial crisis

Update from Naked Capitalism. The Fed Thumbs its Nose . . .:

Even a cursory inspection of the Fed’s disclosures of its extraordinary rescue operations shows them to have been made only under duress, and then to be incomplete and deliberately unhelpful.

The reason this matters, is that, contrary to the Fed’s claims of independence, it has been operating as an extra-legal off balance sheet entity of the Treasury, circumventing normal Constitutionally-stipulated budget processes. And rather than make adjustments in its practices to reflect its enlarged and now overtly political role, the Fed has instead been engaging in cynical, blatant misrepresentation, giving lip service to the idea of greater transparency in pubic, while fighting disclosure tooth and nail.

Since the Fed has entered into an openly political stance (and this dates back to Greenspan) and cannot be relied upon to make truthful and complete disclosures, the only recourse is to put it on a much shorter leash, which includes greater scrutiny, including third party validation. The Fed has brought on the audit demands via the unabashed and repeated abuse of its privileged role. . . .

[Explaining the Fed's handling of its Maiden Lane off-balance sheet transactions for Bear and AIG . . .] The Fed is engaging in same practices that caused the crisis: failure to make timely disclosures, obfuscation, use of off balance sheet vehicles to distance itself from losses. This posture alone should disqualify the central bank from assuming a greater regulatory role.

The Fed and Treasury’s three card monte operation is anti-democratic and possibly illegal, and to add insult to injury, voters are treated as if they have no right to know when they are ultimately footing the bill. The Fed’s persistent stonewalling and deep seated hostility toward the public provide ample proof of the need for an audit.