Monday, August 16, 2010

Former Treasury Official: If the Chinese Stop Buying Treasury Debt, TheGovernment Is Going to Make Pension Managers Buy It In Your Retirement Accounts

Paul Craig Roberts  the former head of policy at the Department of Treasury says the government has one more trick up its sleeve before it starts prinitng money. You are not going to like this:

The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.”

As John Williams ( has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats.

It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.

However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging. Kotlikoff thinks the solution is savage Social Security and Medicare cuts or equally savage tax increases or hyperinflation to destroy the vast debts.

Perhaps economists lack imagination, or perhaps they don’t want to be cut off from Wall Street and corporate subsidies, but Social Security and Medicare are insufficient at their present levels, especially considering the erosion of private pensions by the dot com, derivative and real estate bubbles. Cuts in Social Security and Medicare, for which people have paid 15 per cent of their earnings all their lives, would result in starvation and deaths from curable diseases.

Tax increases make even less sense. It is widely acknowledged that the majority of households cannot survive on one job. Both husband and wife work and often one of the partners has two jobs in order to make ends meet. Raising taxes makes it harder to make ends meet–thus more foreclosures, more food stamps, more homelessness. What kind of economist or humane person thinks this is a solution?

Ah, but we will tax the rich. The rich have enough money. They will simply stop earning.

Let’s get real. Here is what the government is likely to do. Once Washington realize that the dollar is at risk and that they can no longer finance their wars by borrowing abroad, the government will either levy a tax on private pensions on the grounds that the pensions have accumulated tax-deferred, or the government will require pension fund managers to purchase Treasury debt with our pensions. This will buy the government a bit more time while pension accounts are loaded up with worthless paper


  1. Do you really think it's a great idea that pensions are heavily invested in equities? That's been a great idea Robert.

    It would have been great to implement Bush's proposal that social security be invested in the stock market, in the same way as a 401K. This is the type of delusion that accompanies bubbles at their euphoric height.

    Whereas ZeroHedge is at least funny, you should take your losses on your treasury shorts and lighten up.

  2. I don't think it was Robert's opinion/idea. In fact, I think he posted it as a "Look how they are trampling on your property to fix/ hide their own stupidity" wake up call.

  3. Then Robert should probably nix the editorial. We have a lot of editorial about inflation and rates - but no position disclosure. Just a lot of hot air until he draws a line in the sand.

  4. Sorry, it is my policy not to respond to this type comment when you hide behind the cloak of anonimity. Until you provide verifiable diclosure as to who you are, I'll assume your calls for disclosre are not serious.

  5. This is cetainly a real risk but Roberts also suggested increasing taxes on companies with overseas operations to force them back to the US along with the jobs. Whats to prevent the companies from exiting the US entirely? Or is his next proposal a nationalization of these companies?

    This kind of short-sighted thinking doesn't build confidence in his other ideas. Rather than taxing pensions which would have a heavy political price for relatively little revenue, inflation is a much more politically safe strategy and can generate a lot more "revenue."