-Caveat Lector- from: http://www.zolatimes.com/V3.5/pageone.html <A HREF="http://www.zolatimes.com/V3.5/pageone.html">Laissez Faire City Times - Volume 3 Issue 5</A> The Laissez Faire City Times February 1, 1999 - Volume 3, Issue 5 Editor & Chief: Emile Zola ----- There is No Budget Surplus by Zola There is no federal government budget surplus. You wouldn’t know that if you simply read the news media. If the White House announced that "two twenties make a fifty," the media would devote itself to educating the public why this seeming paradox was indeed correct. The best proxy for the net balance on the federal government budget is the change in total outstanding federal government debt. Oh, one can quibble about a few billion here and there, but the fact is the government doesn’t borrow just to increase its overall cash holdings (without spending the latter). If the government borrows, it is because it needs the money to fund current spending. The government’s fiscal year is from October to October. Here is the change in debt for the fiscal year just past: Total Federal Debt as of stated date: Sept 29, 1998 $5,523,785,740,880 Sept 30, 1997 $5,413,146,011,397 Increase: $110,639,729,483 So this past fiscal year, the government ran a $110 billion dollar deficit. Don’t take my word for it. Look at the numbers for yourself over at: http://www.publicdebt.treas.gov/cgi-bin/cgiwrap/~www/opdpen.cgi Since the end of the fiscal year in October, the federal government has continued to run a deficit, but at an even more accelerated pace: Total Federal Debt as of stated date: Jan 28, 1999 $5,609,326,147,376 Sept 29, 1998 $5,523,785,740,880 Increase: $85,540,406,496 So far in the current fiscal year, the federal government has run a $85 billion deficit. And there is still plenty of time left to rack up more red ink. So why do they tell us there is a "surplus"? you ask. Because they are politicians and they lie. Bill Clinton has turned this process into high art. "Look at the size of my surplus!" Bill says. No one is quite sure what he’s pointing at. In government, however, lies have their logic. This one is a matter of accounting fakery. The chief fudge involves Social Security. Just like all other taxes, Social Security payroll taxes get deposited in US Treasury accounts at the various Federal Reserve Banks. Social Security benefits are paid out of these same accounts. A few years ago the politicians "saved" social security (again), so currently the working stiffs are sending in more Social Security taxes than the government is paying out in benefits. Social Security is in "surplus" on a cash-flow basis. Now the reason for this cash surplus was supposedly to build up the "trust fund", because the cash flow goes negative in 2012 or thereabouts. But what does the government actually do with the cash flow surplus? Well, it just takes the money and spends it—like all other tax receipts. The government takes the cash, but issues Treasury securities, or government IOUs, to the "trust fund." That is, instead of going out to the market, and selling its bonds, notes, and T-bills through Salomon or Goldman Sachs or Merrill Lynch, as it does in the normal case, the government simply borrows from the trust fund. Hell, the cash is already there in the Treasury’s bank account. By borrowing it directly, the Treasury doesn’t have to pay investment banking fees, and the amount of government debt sold on the open market is reduced—thereby lowering government borrowing costs (and ripping off Social Security, which gets a below a market rate of interest). Now, of course, the fact the government is spending the surplus instead of saving it means that the whole process of "saving" Social Security is a confidence game: the increased cash flow has only given the government more funds to spend on current consumption. But--this is not commentary about Social Security. So let’s get back to the mythical federal government budget "surplus." To create the mythical surplus Bill Clinton has been talking about, the Social Security cash flow surplus that has been grabbed by the government is counted as income. However, the bonds issued to the trust fund (the borrowing) is not counted. Presto: a big deficit becomes a "surplus." Suppose you go out right now and borrow $1000 on your credit card. You now have an extra $1000 cash, and you have more debt (which, including the transaction fee, has increased more than your cash). But, despite this, you tell everyone: "My income has just gone up by $1000!" Sure, you would be lying to yourself and everyone else, but they can see, as you flash the bills, that you are flush with cash to spend. They can’t observe the increase in credit card debt. So let’s party! This is a typical Clinton sleight-of-hand--Clinton economics. Here are Federal Reserve Board Chairman Alan Greenspan and Senator Ernest Hollings (D-SC) recently discussing Bill Clinton’s budget surplus: ALAN GREENSPAN: ...making sure that surplus is there. HOLLINGS: Yeah, making sure that surplus is there. I'm telling you, Dr. Greenspan, that's music to my ears. GREENSPAN: Well, I remember you taking this song a long way over recent years, and I must say, Senator, a number of us were skeptical that was even discussible, figuring we would never get to unified surplus that we said which you were preaching was very interesting, scientifically sound, but unrealistic. I apologize. HOLLINGS: Well that's all right, because your Greenspan Commission report in section 21 says just exactly what you're saying here. That was in 1983; here now, in 1999, on page two, "simply put, enough resources must be set aside over a lifetime of work to fund retirement consumption." Now that section 21 said set it aside. President Bush, in section 13 3 01 on November the 5th, 1990 signed that into law. And we making headway. Let's understand, though, that we're still running deficits. 'Cause I'm not going along with this monkeyshine about unified. 'Cause unified is not net, the debt still goes up, is that correct? GREENSPAN: If you're...it depends on whether or not you wish to create the savings... HOLLINGS: I'm not asking what you're trying to create. The simple fact is the debt has been going up at least $100 billion for the last several years. GREENSPAN: Outside, on budget, that is correct. HOLLINGS: That's right, on budget, you're spending a hundred billion more than you're taking in. GREENSPAN: Correct. HOLLINGS: And this president's budget spends another hundred billion more than we take in. GREENSPAN: I haven't seen it yet. HOLLINGS: You haven't seen it? You're testifying about it now. GREENSPAN: I haven't seen the budget. You haven't seen it either. HOLLINGS: Well, you know his plan. Look you think he's going to spend less than a hundred billion more? GREENSPAN: I will wait to see what the numbers look like. HOLLINGS: Well, the truth is...ah, shoot, well, we all know there's Washington's math problem. Alan Sloan in this past week's Newsweek says he spends 150%. What we've been doing, Mr. Chairman, in all reality, is taking a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in. That's the reality, and I think that you and I, working the same side of the street now, can have a little bit of success by bringing to everybody's attention this is all intended surplus. In other words, when we passed the Greenspan Commission Report, the Greenspan Commission Report only had Social Security in 1983 a two hundred million surplus. It's projected to have this year a 117 million surplus. I've got the schedule, I'll ask to put in the record the CBO report: 117, 126, 130, 100, going right through to 2008 over the ten year period of 186 billion surplus. That was intended; this is dramatic about all these retirees, the baby boomers. But we foresaw that baby boomer problem, we planned against that baby boomer problem. Our problem is we've been spending that particular reserve, that set-aside that you testify to that is so necessary. That's what I'm trying to get this government back to reality, if we can do that. We owe Social Security 736 billion right this minute. If we saved 117 billion, we could pay that debt down, and have the wonderful effect on the capital markets and savings rate... The problem with Senator Hollings, of course, is that he just hasn’t learned to "compartmentalize" like Bill Clinton. Good liars don’t have a conscience to bother them because their minds are segmented into little segregated pieces that don’t communicate with each other. (Lying to the public was called by Dan Rather "statesmanlike". Clinton’s brain has a big section devoted to statesmanship.) Juanita Broaddrick & Kathleen Willey NBC correspondent Lisa Myers did a thorough investigation of the woman Clinton alleged raped in Arkansas: Juanita Broaddrick. But NBC’s Dateline killed the piece—at least so far—after telling Broaddrick it would definitely run this past Friday. The White House is threatening NBC. Supposedly, Tom Brokaw also threatened to resign if the interview ran. (So, what’s the problem? Pretty-boy airheads who can read from a teleprompter are a dime a dozen.) As Myers already reported back in March 1998: "In court documents today, Paula Jones' lawyers claim Clinton quote 'forcibly raped and sexually assaulted' Broaddrick, then quote ‘bribed and intimidated her’ to remain silent." Well, as the Clinton supporters have unceasingly reminded us in the Monica Lewinsky case, Clinton’s perjury and obstruction of justice were "just about sex." So, if it happened, Clinton’s rape of Broaddrick was also "just about sex." So why panic over a little hardcopy--er...Dateline? Of course, it doesn’t look too good standing alongside a private investigator’s corroboration of Kathleen Willey’s story that she was intimidated into remaining silent about her story of being groped by Bill. As reported by ABC News (see the story at http://www.abcnews.go.com/sections/us/PoliticalNation/pn_990129.html), Kenneth Starr is looking at private investigator Jarrett Stern, who was hired by Saul Schwartzback, a lawyer for Nathan Landow. "Sources say Stern was asked to pull Willey’s phone records, to find out what medications Willey might be taking and to conduct a ‘noisy’ investigation aimed at making sure Willey knew she was being watched." Of course we all remember Nathan Landow. It was at his private estate that Vince Foster spent his last weekend—along with Webster Hubbell and George Stephanapolous and Lisa Foster—before being discovered very dead in Ft. Marcy Park a couple days later on July 20, 1993. Clinton is toast and he’s starting to turn brown. The Market Our option lost value this week. The Dow cash index went from 9121 to 9359, a rise of 238 Dow points. The March Dow future at the CBOT went from 9165 to 9370, a rise of 205 Dow points. So the in-the-money amount of the option fell by about $2000 (from the rise in the future). Strangely, the market value of the option also fell almost $2000 (down to $4150), which makes no sense, as the option delta is not 1.0 but about .5 (which means its value should move only 50 cents for each dollar move in the market). But the trusty market gurus will interpret this as a "fall in implied volatility" (implied volatility being the market’s forecast of the standard deviation of the natural logarithm of the Dow over the remaining life of the option). But the better explanation is there is no trading in this particular option, so the marketmaker (I use the singular because I doubt there are two of them) can move prices around pretty much as he damn well pleases. What he can’t control, however, is the ability of the option-holder to exercise the option. In the early January run up to new highs, the Dow had less relative strength than either the S&P or the NASDAQ. That’s why I chose a put on the Dow. Looking forward, however, a put on the NASDAQ will probably be a better play. Internet stocks look to be ready to crack. In any case, I hope you are having as much fun as I am. from The Laissez Faire City Times, Vol 3, No 5, Feb. 1, 1999 ----- Published by Laissez Faire City Netcasting Group, Inc. Copyright 1998 - Trademark Registered with LFC Public Registrar All Rights Reserved Disclaimer The Laissez Faire City Times is a private newspaper. Although it is published by a corporation domiciled within the sovereign domain of Laissez Faire City, it is not an "official organ" of the city or its founding trust. Just as the New York Times is unaffiliated with the city of New York, the City Times is only one of what may be several news publications located in, or domiciled at, Laissez Faire City proper. For information about LFC, please contact [EMAIL PROTECTED] ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. 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