The Death of Paper Money

[katoa]

Interesting article by Ambrose Evans-Pritchard

http://www.telegraph.co.uk/finance/c...per-Money.html

All the Keynesian economists are predicting deflation, but they don't exactly have a good track record in forecasting (not to mention whether they'll accept the blame for our current mess). Even if they are correct, the likely eventual result will be long-term inflation (eventually doubling the money supply in the past 2 years WILL have a large effect). Whether it is enough to spook the public's trust (which our paper money supply system is based on) remains to be seen, much of which will be dictated by whether China continues selling off its dollars and Treasury Bonds.



“The annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009.
Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit.”
--John Williams (shadowstats.com)

For anyone really interested, I strongly recommend this analysis:

http://www.shadowstats.com/article/hyperinflation-2010


Ain't life happy in serfdom land?

[Uncle Ted]

I have personally been hedging in guns since I think gold is overbought. Besides the US government has a secret method of turning lead into gold anyway that wikileaks will post any day now.

Interesting about the part about the transfer of wealth from saver to debtor:

The winners were those who -- by luck or design -- had borrowed heavily from banks to buy hard assets, or industrial conglomerates that had issued debentures. There was a great transfer of wealth from saver to debtor, though the Reichstag later passed a law linking old contracts to the gold price. Creditors clawed back something.

I guess the first sign of hyper-inflation we should go against the church leaders' counsel and leverage everything we can.

[katoa]

I have personally been hedging in guns since I think gold is overbought. Besides the US government has a secret method of turning lead into gold anyway that wikileaks will post any day now.

Hehe. Guns may get confiscated before even gold&silver, although it would not be pretty seeing that try to be enforced in middle America.

Interesting about the part about the transfer of wealth from saver to debtor:

I guess the first sign of hyper-inflation we should go against the church leaders' counsel and leverage everything we can.

Although they did re-adjust loans to account for the hyper-inflation. No way in hell that Bankers take the fall, with government in their back pocket.

Likely the only real benefit will be wiping out our National Debt (although at the cost of being relegated to a third-world country), and the savers that will get screwed are everyone's 401k's and those holding long-term Treasury Bonds (hence one of the reasons China and others are switching to short-term bonds).

[Moliere]

“The annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009.
Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit.”
--John Williams (shadowstats.com)

Is there a worse statement out there than this? I know we are in trouble financially and have to get it straightened out, but what does it mean to balance the deficit on a GAAP basis anyway? Does this mean to eliminate our debt and cover our liabilities? Thankfully you post is not premised on this one statement but it is still ludicrous (the GAAP statement, not the entire post).

[beelzebabette]

Is there a worse statement out there than this? I know we are in trouble financially and have to get it straightened out, but what does it mean to balance the deficit on a GAAP basis anyway? Does this mean to eliminate our debt and cover our liabilities? Thankfully you post is not premised on this one statement but it is still ludicrous (the GAAP statement, not the entire post).

lol. Thank you, EJ.

I think I may start a poll re: what professionals are perceived as most literal, CPAs, actuaries, engineers... Any others I should include?

[Jarid in Cedar]

lol. Thank you, EJ.

I think I may start a poll re: what professionals are perceived as most literal, CPAs, actuaries, engineers... Any others I should include?

Court house stenographers

[creekster]

Court house stenographers

you would be surprised. If they like you they will clean up your stammers and stumbles and make you read like perry stinkin' mason.

[Jarid in Cedar]

you would be surprised. If they like you they will clean up your stammers and stumbles and make you read like perry stinkin' mason.

Count me as surprised. I thought they were supposed to record exactly as it was said.

EDIT: I guess the umms, aaaahs, are not necessary for the record.

[katoa]

Is there a worse statement out there than this? I know we are in trouble financially and have to get it straightened out, but what does it mean to balance the deficit on a GAAP basis anyway? Does this mean to eliminate our debt and cover our liabilities? Thankfully you post is not premised on this one statement but it is still ludicrous (the GAAP statement, not the entire post).

I'm not an accountant, but we require standardized GAAP accounting of businesses so the markets can accurately and fairly determine worth and credit-worthiness. In the U.S., so many financial games are played with future liabilities that are hidden and kept off the official books, it is far more difficult for investors and creditors of the U.S. to do the same. As a business owner, I'd go to jail if I played those sorts of games.

[beelzebabette]

I'm not an accountant, but we require standardized GAAP accounting of businesses so the markets can accurately and fairly determine worth and credit-worthiness. In the U.S., so many financial games are played with future liabilities that are hidden and kept off the official books, it is far more difficult for investors and creditors of the U.S. to do the same. As a business owner, I'd go to jail if I played those sorts of games.

I believe what Mr Jones is trying to say to you is that GAAP is a reporting standard that has nothing to do with payment to creditors so it is therefore impossible to "balance its deficit on a GAAP basis for a year."

As for GAAP reporting as you appear to be referring to it, Generally Accepted Accounting Principles are different principles for a government and a business so I'm not sure that analogy really works either.

[creekster]

Count me as surprised. I thought they were supposed to record exactly as it was said.

EDIT: I guess the umms, aaaahs, are not necessary for the record.

You are correct. ALthough I ahve seen them take some liberties in other ways too, but it is rare. If they dont like oyu, they can also make you look like a stammering idiot on the record.

[katoa]

I believe what Mr Jones is trying to say to you is that GAAP is a reporting standard that has nothing to do with payment to creditors so it is therefore impossible to "balance its deficit on a GAAP basis for a year."

As for GAAP reporting as you appear to be referring to it, Generally Accepted Accounting Principles are different principles for a government and a business so I'm not sure that analogy really works either.

Why (asking as a non-financial professional)? Why shouldn't the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare be included (which they currently are not under current cash accounting methods)? That has everything to do with whether we will be able to pay our creditors, does it not?

[beelzebabette]

Why (asking as a non-financial professional)? Why shouldn't the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare be included (which they currently are not under current cash accounting methods)? That has everything to do with whether we will be able to pay our creditors, does it not?

Governments haven't used cash-basis accounting (or the modified accrual method you're referring to) in something like eight years. I'm not sure when the federal standards were applied, but I don't think their timeline was much different.

Governments do prepare two types of financial statements as part of a complete set, but there are genuine uses for the different reports. A balance sheet gives you an idea of whether infrastructure is being maintained and what long-term liabilities are, while a statement of net assets will exclude your capital assets because a city can't barter their roads to pay their bill for office supplies. Tax collection timing affects the ability of the government to use those funds for expenditures and that's reflected in the financial statements.

I think I understand where you're coming from, but at least look at the federal financial statements:
http://www.fms.treas.gov/fr/09frusg/09frusg.pdf
The balance sheet is page 49.

Page 50 has your unfunded social security.

[ERCougar]

You are correct. ALthough I ahve seen them take some liberties in other ways too, but it is rare. If they dont like oyu, they can also make you look like a stammering idiot on the record.

That's interesting. I was just thinking this same thing a few weeks ago as I was reviewing the transcript from a hearing I was involved in at a hospital I used to work at, and I look like a bumbling idiot from the transcript, while the administration representatives come across as remarkably eloquent. Maybe I sound like that all the time, but I was suspecting this same thing. Guess who employed the stenographer?

[Moliere]

Why (asking as a non-financial professional)? Why shouldn't the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare be included (which they currently are not under current cash accounting methods)? That has everything to do with whether we will be able to pay our creditors, does it not?

Well, BBette hit the nail on the head in explaining why that the statement in the quote is ludicrous, but your argument above is not. Sure we should know the value of unfunded liabilities, but this would just result in more scare tactics. If you are going to make one side of the balance sheet in accordance with GAAP then you need to do it to the other side.

Governments follow a set of GAAP specifically designed for governments and non-profits (I have only dealt with these in a former profession and only recently have they adopted pension and OPEB related rules). I believe SS and Medicare fall outside of the requirements of liability reporting and I'm sure that is in no way coincendental to the fact that the US government makes up those rules.

Couple this with the fact that some governmental entities are unauditable or at least fail to keep adequate records to permit auditing. I don't have it in front of me now but I believe the Department of Homeland Security is one on which a scope limitation (or maybe the GAO even disclaimed from issuing an opinion, I'll look it up later). You'll see that even though I don't mind government, I do wish it operated more efficiently.

Found an article on this: http://www.msnbc.msn.com/id/20780840/