

Credit Suisse: America Is Not Broke (Understanding The Modern Monetary System) - espeed
http://pragcap.com/credit-suisse-america-is-not-broke

======
espeed
And it links to this ([http://pragcap.com/resources/understanding-modern-
monetary-s...](http://pragcap.com/resources/understanding-modern-monetary-
system))...

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
Wow I thought you were trolling and quoting the matrix.

~~~
espeed
You can watch the exchange here: <http://www.youtube.com/watch?v=R5lZPWNFizQ>

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noahl
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+ev...](http://www.google.com/search?q=site:credit-
suisse.com+not+even+close+to+broke)

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/>

This sounds interesting, but I'd like to see the source they got it from.

~~~
espeed
Here is info on the 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-...](http://www.businessinsider.com/credit-suisse-
america-is-not-even-close-to-being-broke-2011-4)).

The Credit Suisse research report may not be public.

------
espeed
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
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_budg...](http://en.wikipedia.org/wiki/2011_United_States_federal_budget)

~~~
ender7
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.

------
turbojerry
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.

------
TomOfTTB
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>. 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
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-s...](http://pragcap.com/resources/understanding-modern-monetary-
system)).

"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."

~~~
TomOfTTB
That doesn't contradict anything I said. My whole point was the government
will have to impose hardships on the private sector once the amount of debt
gets too large to otherwise service. At which point people will start leaving.

