The Government's Big Secret:
Dear Reader,
The federal government’s big secret isn’t that its spendthrift ways are destroying the country; it’s that it knows its spendthrift ways are destroying the country and it’s doing absolutely nothing to remedy the situation. In fact, all recent government action has exacerbated the decline. And it knows that too.
For instance, “The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” (link here) reports, in black and white, that the Social Security unfunded liability is a whopping $15.1 trillion. Furthermore, the “2009 Annual Report of The Board of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” (link here) reports that the Medicare unfunded liability is an even more staggering $36.4 trillion.
These “trustees,” mind you, are not some outside government watchdog group either. The Managing Trustee of both boards is none other than Secretary of the Treasury Tim Geithner. And if Geithner’s aware of the situation, you know Obama and Congress are, yet you never hear anything about this reported in the mainstream media. What you get instead is pushed-through health care legislation that will add even more costs to Medicare – and the mainstream media cheers.
Want more? The 254-page “2009 Financial Report of the United States Government,” which is produced by the Treasury Department, is full of goodies illustrating just how deep in the quagmire we are.
Check out the chart below, which shows the government’s projection of debt held by the public in relation to GDP. And keep in mind that this is not what’s called the “National Debt,” which includes intragovernmental debt but just what can be considered “net debt,” or debt held by the public.
[Note: Debt held by the public is all the federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the U.S. Government. Intra-governmental debt is the Government Account Series securities held by government trust funds, revolving funds and other special funds, which are generally required to invest in U.S. Treasury securities. The federal government competes with private industry for credit, therefore the level of debt held by the public shows how much of the nation’s wealth has been absorbed by federal government expenditures. Interest on the public debt is a direct expense of the taxpayers paid in cash by the Treasury. Intragovernmental debt and its interest, on the other hand, aren’t necessarily paid in cash from the current budget. Instead, it often represents a liability on a future budget until the government agency holding the debt needs to cash it in (i.e. when the baby boomer social security payments come rolling in).]
Research shows that when debt reaches 75% to 100% of a country’s GDP, a default or restructuring may not be far behind. The U.S.’s net debt is already 57.4% of nominal GDP. So, by the government’s own predictions, we could expect a debt default or restructuring around 2020.
The document also reveals that rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 100 cents of every dollar of federal revenue by 2020. This is astounding. By the government’s own calculations, interest on the debt and spending on entitlement programs will eat up everything the U.S. Government takes in before a penny is spent on anything else. That’s a recipe for disaster if ever there was one. And this document was written before Obamacare was on the books.
Now, going back to that bit about the government knowing its recent actions are only going to exacerbate the decline, I’d like to point to a recent article from moneynews.com which reports that even the former director of the Congressional Budget Office, Douglas Holtz-Eakin, thinks Obamacare will bankrupt the U.S.
Here’s an excerpt from the article:
While the Congressional Budget Office reported that President Barack Obama’s healthcare bill would lower federal deficits by $138 billion, the budget office “is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” says former CBO director Douglas Holtz-Eakin.
“So fantasy in, fantasy out.”
Strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The healthcare reform legislation would raise, not lower, federal deficits, Holtz-Eakin writes in The New York Times.
“Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years,” Holtz-Eakin points out.
“And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see.”
With that in mind, it looks like the U.S. could reach the danger zone of debt to GDP well before 2020. Something to think about…
Politicizing Monetary Policy
By Vedran Vuk
Politicians are notorious for economically illogical stands and incredulous claims. Just last week, the public was told that insuring 30 million more Americans would reduce healthcare spending. Now, a group of 130 Republicans and Democrats are calling on the U.S. Treasury to label China as a “currency manipulator” in order to justify enacting import tariffs.
With this label, lower Chinese interest rates could be considered a business subsidy. Hence, this would qualify as an unfair trade practice enabling retaliatory tariffs. Of course, lower interest rates are indirect subsidies. Notice the jubilation on Wall Street when Bernanke lowers rates. But if China is guilty of currency manipulation, then the U.S. and every other country on Earth is an equal culprit.
Congress’s plan is so deeply ignorant that it’s difficult to respect its position as a legitimate opinion and not a gaffe or a malicious Machiavellian maneuver. Every central bank in the world manipulates currencies, including our own Federal Reserve. Perhaps, Congress will next request the EPA to confirm that forests actually do have trees.
First of all, the defined role of every central bank is to maintain some form of price stability. Naturally to do this, central banks must manipulate their own currencies through interest rates. The second common goal is to maintain full employment. Keeping the currency down to promote exports certainly falls into this role.
Failure to adequately manipulate currencies deserves more criticism than China’s export driven strategy. After all, every central bank fails at the job of manipulating currencies, eventually causing inflation and other severe macroeconomic disruptions.
Last year, politicizing monetary policy was news, but few seem as concerned today. Remember the attacks launched at Ron Paul’s Federal Reserve Transparency Act (H.R. 1207). When Paul’s bill was introduced, lobbyists were immediately hired, think tanks published on the topic, and pundits of all stripes made their opinions known.
The bill was reportedly a gross politicization of the Fed, although it did no such thing. The act only promises to expand the General Accountability Office’s audit powers to cover transactions with foreign banks and governments, transactions made under the FOMC, and certain other currently secretive operations. These audits would be performed long after Fed decisions.
GAO audits would be no more disruptive than releasing FOMC minutes three weeks after a rate decision. Sure, these releases can cause temporary market fluctuations but nothing that would unravel the Fed’s ability to perform currency manipulation – sorry, I meant monetary policy. One could even make the case that Paul’s bill would force the Federal Reserve to be more honest about transactions, thereby reducing politicization and promoting independence.
While Ron Paul’s bill does little to politicize the Fed, the threat of import tariffs over an interest rate disagreement practically takes monetary policy by the reins. Other than Congress directly nationalizing the Fed, little else could be done to politicize monetary policy more so.
Politicizing monetary policy doesn’t stop with Chinese interest rates. Chris Dodd’s new financial overhaul bill would give U.S. Presidents the power to appoint the President of the New York Federal Reserve Bank.
Dodd’s quote on the matter is simply brilliant. Dodd, the intellectual giant, says, “[this process ensures the New York President is] not handpicked by the very bankers the New York Fed is responsible for regulating.” U.S. Presidents have made countless Wall Street-affiliated picks for the Secretary of the Treasury throughout the years. Most recently, this includes Henry Paulson and Robert Rubin, both former high-ranking Goldman Sachs employees. There is no reason to expect more prudent presidential picks for this position either.
When it comes to economics, most Congressmen are fairly clueless. But apparently on monetary policy, they make their usual economic insanities look like pieces of ancient wisdom. After the healthcare bill, who could predict that things would get worse so soon? Well, here we are with Dodd’s bill and a looming China tariff war. Politicizing monetary policy is in full effect.
The Memristor
By Doug Hornig
[Ed. Note: Every month in Casey’s Extraordinary Technology, alongside our investment recommendations, we try to bring you a little entertainment and maybe even a little enlightenment, in the form of new scientific breakthroughs you absolutely need to know about, new products you ought to try, or just plain cool things you’ll want to see. We call this section Research and Development, or R&D for short, and most months it includes one new scientific advance of merit and one new gadget on the horizon. These aren’t investment opportunities today, usually. Just fascinating science. Remarkable achievements. Cool gadgets. And other extraordinary technology. What follows is an example of one such R&D article written by our own Doug Hornig.]
The fundamental architecture of a computer hasn’t changed much in half a century. At the heart of the machine are the same basic languages and chip designs as were there in the 1960s. Sure, computers are much, much smaller. And much, much faster. And they do a whole bunch more – thanks to the flexibility of software that can be written to address nearly any task. But at their root, computers are all composed of just three basic parts: the inductor, the resistor, and the capacitor.
These three fundamental building blocks of the circuit, assembled together in increasingly complex arrays of thousands, millions, or even billions together on a chip, make up the brains of a computer. And for decades it was thought that they were it. The whole enchilada. The only parts necessary to complete any computer, from a PC to a brain. But unlike most things in the engineering world, there was no real mathematical proof this was the case. And this bothered UC Berkeley professor Leon Chua. So he set out to write one.
Along the way to proving the logic of computers, he noticed a piece missing from the puzzle. A fourth basic building block of logic. What he dubbed the “memristor.” You see, way back in 1971, Chua was examining the four properties that make up an electronic circuit: A) electric charge, B) current (or the change in charge over time), C) magnetic flux (the strength of the magnetic field a current produces), and D) voltage (or the change in magnetic flux over time). These four properties could interact in only six possible ways, or combinations – A-B, A-C, A-D, B-C, B-D, and C-D. When he dug in, it was clear to him that there were devices or logical relationships for only five of these combinations. But one, the relationship between magnetic flux and charge, went curiously undefined.
Chua’s proposed device – a small component that could essentially remember what kind of charge last passed through it – filled the gap. But it went relatively unnoticed in the field of computer science for decades after, with just a handful of very interested researchers furthering its study. Why? Well, as far as Chua or anyone else knew, memristors just did not exist. It’s not easy to study something you can’t find, after all.
So, why is this discovery from 1971 suddenly news now? Well, earlier this decade, Stan Williams, a senior researcher at Hewlett-Packard, set out to build a fast, low-power switch by placing two microscopic – atom-level, in fact – resistors in a stack, using the current in one to flip the resistance in the other. He was successful in building the device, but couldn’t seem to predict how it would actually behave. After some digging, three years’ worth apparently, he discovered why – he needed a memristor in his model of the device to complete the logic.
And the reason was simple. He had inadvertently built the first known memristor itself.
And the benefits of the device quickly became clear. It is far faster than any kind of memory circuit on the market today, uses far less power, and has the unique benefit that when you turn the power off, it maintains its “memory.” Not quite getting it yet? Imagine this: yank the plug out of your computer right now as you are reading this. Come back two hours later and plug it back in. Snap, it is instantly back on, exactly where you left off. Neat trick, eh?
And the original author, Chua, is also hard at work on hybrid devices that combine the memristor with traditional components to produce new effects. Like a switch that can store data without dissipating any energy at all.
Don’t expect these devices on store shelves anytime too soon, though. This stuff is so cutting edge, it might take anywhere from a few years to a couple of decades to get out of the lab and into your laptop bag.
The applications of the new device don’t stop with standard computers either. For the past few years, scientists have been building, and discovering, devices and even organisms that appear to behave like memristors. Just as you don’t notice how many particular cars are on the road until you buy the same one, science has a tendency not to notice something all around it until the idea really sets in.
As the community studying this unique new technology catches up to Chua’s work, they have also been taking note of another aspect. Chua proposed, quite astutely, in his very first paper on the subject, that these memristors might be the exact mechanism that makes synapses in the human brain possible. Early research indicates this may indeed be the case.
For decades, computer researchers have toiled away with little success, attempting to build a simulated brain. If memristors do prove to be the key to unlocking the secrets of how the brain works, it won’t just change computing forever, it will change our whole definition of what a computer is and what it is capable of.
The government is sinking its resources into the area now, too. DARPA, the Defense Advanced Research Projects Agency – which has brought us such low-impact inventions as the Internet – recently launched the Systems of Neuromorphic Adaptive Plastic Scalable Electronics Program, SyNAPSE, which sponsors scientists to help create an "electronic neuromorphic machine technology that is scalable to biological levels." In other words, a biologically complex computer with an adaptive brain. A true thinking machine.
Skynet, 1. Humans, 0.
Friday Funnies
During their first joint visit to Haiti, George W. Bush appears to wipe his hand on Bill Clinton’s shirt after shaking hands with a crowd of Haitians. Truthfully, I find this video more insulting than funny, but here’s the clip.
Now here are some pictures and cartoons poking fun at some current and former politicians.
And one cute one…
And with that, dear reader, I bid you good day. David won’t be back from Argentina until mid-next week, so I’ll be here with you on Monday. Until then, thank you for reading and for subscribing to a Casey Research service. Have a great weekend!
Chris Wood
Casey Research, LLC
http://www.caseyresearch.com/displayCdd.php?id=381
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