{"id":459,"date":"2012-06-28T10:37:12","date_gmt":"2012-06-28T10:37:12","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=340"},"modified":"2012-06-28T10:37:12","modified_gmt":"2012-06-28T10:37:12","slug":"just-because-things-are-bad-in-europe-doesnt-mean-they-have-improved-in-the-us","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2012\/06\/28\/just-because-things-are-bad-in-europe-doesnt-mean-they-have-improved-in-the-us\/","title":{"rendered":"Just because things are bad in Europe, doesn\u2019t mean they have improved in the US !"},"content":{"rendered":"

\"\"
\n<\/a>Vivek Kaul
\n<\/strong>
\n\u201cSo things are getting worse in Europe,\u201d she said.
\n\u201cLet me tell you a small story I read on a blog recently,\u201d I replied.
\n\u201cWhat story?\u201d
\n\u201cSeth Godin, one of the world\u2019s premier brand experts and famous blogger, wrote a blog on the rock band The Rolling Stones<\/em>, a while back.\u201d
\n\u201cBut why are we talking The Rolling St<\/em>ones<\/em>?\u201d she asked. \u201cI am talking economics, you\u2019re talking rock.\u201d
\n\u201cMen are from Mars, Women are from Venus!\u201d
\n\u201cEh?\u201d
\n\u201cNever mind. So in this blog Godin writes \u201cKeith Richards (guitarist and vocalist of The Rolling Stones<\/em>) tells a great story about Charlie Watts, legendary drummer for the Stones. After a night of drinking, Mick (Jagger, the lead vocalist of The Rolling Stones<\/em>) saw Charlie asleep and yelled, “Is that my drummer? Why don’t you get your arse down here?” Richards continues, “Charlie got dressed in a Savile Row suit, tie, shoes, shaved, came down, grabbed him and went boom! Don’t ever call me “your drummer” again. You’re my … singer. No drums, no Stones.\u201d
\n\u201cNo drums, no Stones?\u201d she asked. \u201cWhat does that mean?\u201d
\n\u201cWhat I am trying to say is that at times there is a need to look at things differently.\u201d
\n\u201cDifferently?\u201d
\n\u201cYes with all this brouhaha about Europe, people have forgotten the United States(US),\u201d I explained.
\n\u201cSo you mean that there is no problem in Europe?\u201d
\n\u201cOf course not. But just because there are problems in Europe doesn\u2019t mean things are fine in the US.\u201d
\n\u201cSo what you mean is that with all the attention being paid on Europe, people are ignoring the issues in the US?\u201d
\n\u201cRight. In fact, the unfunded liabilities of the US government are huge.\u201d
\n\u201cNow what are unfunded liabilities?\u201d she asked.
\n\u201cLet us say you want to retire 10 years from now,\u201d I started to explain.
\n\u201cTen years? Why should I retire so early?\u201d she interrupted.
\n\u201cIt\u2019s an example yaar<\/em>.\u201d
\n\u201cOh.\u201d
\n\u201cSo let us say you want to retire 10 years from now. You feel that an income of around Rs 8 lakh per year should be enough for you to sail through.\u201d
\n\u201cBus.That\u2019s too low an amount.\u201d
\n\u201cTo earn an income of Rs 8 lakh per year you would need to build a corpus of Rs 1 crore, assuming that you manage to get an interest of 8% on the corpus you build. But this Rs 1 crore is not going to come out of thin air.\u201d
\n\u201cYeah.\u201d
\n\u201cSo you will have to save regularly to build that Rs 1 crore corpus,\u201d I said.
\n\u201cYes. Paisa kamane ke liye bhi paisa chahiye<\/em>,\u201d she replied. \u201cBut what is all this got to do with the US government?\u201d
\n\u201cWell the logic is the same. What works for you also works for the government. The government gives a pension to people when they retire. If a certain number of people are expected to retire ten years from now, then they would have to be paid a certain amount of pension. While estimating the exact amount is difficult, estimates can be made. But what we know for sure is that money is to be saved now so that citizens can be paid pensions later.\u201d
\n\u201cYup. So what was that part about the unfunded bit?\u201d she asked.
\n\u201cIf governments don\u2019t invest the right amount from now on, which a lot of them don\u2019t including the US government, they will have to pay these citizens by borrowing money later. And if pensions cannot be funded through the investments already made, they are said to be \u2018unfunded\u2019.\u201d
\n\u201cHmmm.\u201d
\n\u201cI was reading this interesting book Ponzi Power<\/em> by Mitch Feierstein. He writes \u201cUsing proper accounting methods\u2026the true value of the state and municipal pension liability is at $5.2trilion. When you deduct the $1.94trillion of pension assets that have already been set aside, you get a net liability of $3.26trillion.\u201d\u201d
\n\u201cThese are big numbers,\u201d she said.
\n\u201cYes. Other than this the US government already has an existing debt of around $14.6trillion.\u201d
\n\u201cSo that\u2019s about it?\u201d
\n\u201cFeierstein also points out that the social security programme of the US government is also underfunded to the extent of $18.8trillion. The underfunding in Medicare, the health insurance programme amounts to around $38.5trillion. So if you add all of this up the number comes to a whopping $75.2trillion and that is what Feierstein feels the US government owes to others like governments and its own citizens. To give you a sense of proportion, the US yearly gross domestic product (GDP) is at $15trillion. The GDP of the entire world is around $60trillion. So these are big numbers we are talking about\u201d
\n\u201cBut isn\u2019t that an estimate?\u201d she asked
\n\u201cYes it is. But it has been drawn partly from documents of the US government. The private estimates are worse. Economist Edward Chancellor writes in a report \u201cOne estimate of US healthcare and pension liabilities runs to 7 times the country\u2019s GDP.\u201d This estimate suggests that the US government owes more than $100trillion. There is no single precise measure of the indebtedness of the US government. But there are big numbers and there are bigger numbers.\u201d
\n\u201cHa Ha<\/em>!\u201d
\n\u201cLaurence Kotlikoff of Boston University has made a lifetime study of the present value of unfunded commitments using data from the US Congressional and Budget Office. He puts the true level of US indebtedness to around $202trillion.\u201d
\n\u201cOh my god!\u201d
\n\u201cYes.\u201d
\n\u201cSo what is the way out?\u201d
\n\u201cWell all these welfare schemes will have to be dramatically cut and that may not be a politically popular move. Otherwise the US debt is going to go up dramatically from its current levels.\u201d
\n\u201cBut I am confused. If things are so bad, why does the US dollar continue to be seen as a safe haven?\u201d
\n\u201cWell, for the simple reason that dollar is the international reserve currency, and if things become too bad the US can always print it to repay. Hence every time there is a hint of a crisis anywhere in the world more money moves to the dollar.\u201d
\n\u201cBut that\u2019s stupid.\u201d
\n\u201cYes it is. But remember as the economist Herbert Stein once wrote, \u201cIf something cannot go on forever, it will stop.\u201d\u201d
\n\u201cWhen will it stop?\u201d
\n\u201cLet me end with a line from John Maynard Keyens. As he famously said \u201cmarkets can remain irrational longer than you can remain solvent!\u201d And as the first rule of forecasting is that give them the forecast or the date, but never both!\u201d
\nThe article originally appeared on Rediff.com on June 28.2012
\n(Vivek Kaul is a writer and can be reached at vivek.kaul@gmail.com)
\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul \u201cSo things are getting worse in Europe,\u201d she said. \u201cLet me tell you a small story I read on a blog recently,\u201d I replied. \u201cWhat story?\u201d \u201cSeth Godin, one of the world\u2019s premier brand experts and famous blogger, wrote a blog on the rock band The Rolling Stones, a while back.\u201d \u201cBut why … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2],"tags":[242,909,2265,2323,2772,3402,3732,3848,3858],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Analysis<\/a>","qubely_excerpt":"Vivek Kaul \u201cSo things are getting worse in Europe,\u201d she said. \u201cLet me tell you a small story I read on a blog recently,\u201d I replied. \u201cWhat story?\u201d \u201cSeth Godin, one of the world\u2019s premier brand experts and famous blogger, wrote a blog on the rock band The Rolling Stones, a while back.\u201d \u201cBut why…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/459"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=459"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/459\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}