Bill Gross of PIMCO re: entitlements - who has an answer?

[ParkieDem]

Most of us have heard that Bill Gross of PIMCO (a bond-focused investment group) has announced that he will be selling all of PIMCO's US Treasury holdings.

In this commentary (http://www.pimco.com/Pages/Skunked.aspx), Gross says that "entitlements" must be dealt with in order for the US to avoid default.

Does anyone have an intelligent response? I'm all for saving SS and Medicare, but I don't have any good arguments against what Gross is saying here.

[damntexdem]

1. The U.S. has never defaulted on its debts.

But House Repukes may change that.

[Angry Dragon]

2. The thing is I think they have to default on all of them

If that was to happen it would be a world wide mess

[ParkieDem]

3. True, but ...

... what Gross is saying in his article is that default won't come in a "traditional" sense -- it will most likely be via massive inflation, significant devaluation of the dollar, etc.

[Yo_Mama]

10. We will if we don't change course

But the debt we will default on is the debt we owe to the most vulnerable among us.

[Cali_Democrat]

4. Simple

Raise taxes, especially on the wealthy and corprations. Many corps pay ZERO taxes. What a joke. Increase tariffs on imported goods from countries that produce them at slave labor wages.

BTW, how is SS an entitlement? Didn't people pay into the system in the first place? Aren't they just getting their money back?

[ParkieDem]

8. SS is an "entitlement"

Sometimes that term is perjoratively used, but it is an entitlement in the sense that if you meet certain criteria, everyone is "entitled" to SS payments under current law.

Yes, people "paid into" the SS system, but it is and always has been a "pay as you go" scheme. The first SS recipients didn't pay into it, or paid very little. And it's been the same ever since. Current retirees aren't being paid by funds they put in, they are being paid by current workers.

[Cali_Democrat]

11. Ya, a pejorative used by the right wing. n/t

[rfranklin]

13. It it's "pay as you go" why does it have a more than 2 trillion dollar surplus?

Please stop repeating right wing misinformation

Social Security’s surplus is not disappearing. While it is true that revenue income received by the Trust Funds has declined during the recession, the program’s financial health is still sound. In fact, as we stated earlier, the surplus held by the Trust Funds is still growing, and is projected by the Social Security actuaries to reach a peak in 2020 of $3.1 trillion.

http://www.ncpssm.org/news/archive/2010_ss_trustees_report/

[Cassandra]

17. The trust fund was supposed to run out when the...

baby boomers did but it's now projected to go beyond that point.

[LanternWaste]

23. your protection by the U.S. military is an entitlement....

Entitlement: "An entitlement is a guarantee of access to benefits based on established rights or by legislation."

Hence, your protection by the U.S. military is an entitlement. Always good to know.

[jwirr]

21. Close the loop holes and get rid of the booosh tax breaks.

[BeFree]

5. Is GE entitled?

Yes, GE is entitled. GE can make all the profits they can and are entitled to not pay an income tax.

You, and I, tho, are entitled to pay an income tax or we go to jail.

As for Treasuries... the Treasury has something like $2 Trillion in SS funds.
Bill wants to destroy SS. So, if he can get treasuries devalued he's done him and the rich a great service. SS bonds are a debt that treasury owes poor people. If they can bankrupt the treasury and erase the SS debt, the rich win and the poor lose.

[freshwest]

18. Smoke and mirrors to hide the theft of not only the poor's share, but their lives.

[CountAllVotes]

6. Bill Gross is not a happy man

He was buying shares of his own gross bond funds not long ago. That didn't help any as they are still in the hole for the year (when you figure in the fact that all of his "funds" are loaded ones).

Now that the Fed didn't play into his game (allowing Gross to buy mortgage backed securities), he doesn't want to buy any more treasuries for revenge IMO. :nopity:

This guy is Madoff-like IMO.

Go find something else to do with yourself Mr. Gross.

:dem:

[MannyGoldstein]

7. Medicare is a problem; Social Security is zero problem.

Medicare is a huge problem purely because we refuse to reign in costs: we spend twice as much for medical care, per person, as other countries. This is bankrupting us. RomneyObamaCare does essentially nothing to attack this.

http://fdrdemocrats.org/the-common-sense-guide-to-social-security/">Social Security is no problem at all. Zero. Nada. Bupkes.

[Bgno64]

20. That's it exactly,

and note that when the likes of Gross talk about the dire need to rein in Medicare, never/rarely do they address spiking health care costs.

Likewise, when talking about entitlements in general, never will they address the fact that the playing field is so tilted against the working man/woman, jobs now in such short supply (and GOOD jobs with good benefits in even shorter supply) that without the entitlements we're a Third World country, if that.

If entitlements are to be amended it MUST be part of a broader package that includes higher taxes on top earners and corporate profits. These guys want to balance things out entirely on the backs of the middle and lower classes; they don't want to have to personally sacrifice one thin dime.

[Yo_Mama]

9. Look at this chart

That's from this article.

You can see that the "unfunded" liability for SS is of an order of different magnitude than for Medicare and Medicaid. And btw, health care reform as currently enacted really relies on Medicaid. That's why I never thought the current attempt was fiscally possible.

The way the unfunded liability is calculated is that they take the entire expected future stream of incomes vs outgoes and then discount it back to a current number (present value).

It does not take that much in the way of raising incomes to cut down that 7.9 trillion number, because I think it runs out over 70 years. Therefore, one can theoretically say that if we consider just Social Security, the problem is addressable without the parade of nasties Gross discusses.

But Medicaid and Medicare? Nope. Note that Medicaid is the largest unfunded liability by far.

Because what's not conceivable is that you could raise taxes enough to take care of all of these problems together. Something will change, and it's almost certainly going to be limits in medical care for those getting Medicare and Medicaid. Indeed, the process seems well on its way given what I have read about initiatives to cut Medicaid coverage, and Sibellius' letter to states telling them what they could cut. So if you're not covering dental/eye/artificial limbs/therapies/prescriptions you do save money, but the effect on many of those subjected to some of these limits is very significant, even to the point of death.

Btw, it's not just PIMCO that's selling. Banks are probably reducing their net positions in Treasuries. Here's H.8 Commercial Banks Assets and Liabilities.
http://www.federalreserve.gov/releases/h8/current/default.htm

He's taking these numbers from Meeks' "USA Inc" analysis which I think is very good. It's a long pdf and you can download it here:
http://www.kpcb.com/usainc/USA_Inc.pdf

[rfranklin]

14. Horse manure...the government is not a business!

And that is right wing propaganda you are quoting.

[freshwest]

19. Thanks for that.

[Yo_Mama]

22. Numbers are just numbers

What makes up your political ideology is how you decide to deal with them.

The numbers are about as good as they can be given the uncertainty over a long time frame.

If we fail to deal with them at all, what will end up happening is that we won't be able to borrow more money to pay for these programs, and the people who depend on them will be in dire straits.

What I would like the Democratic party to do is renew its commitment to the the most vulnerable. The more I hear talk about the "middle class", the less GE and all these big companies pay, and the worse it looks for some 75 year old or some disabled 20 year old in 15 years.

Not dealing with it is abandoning these people. But there are ways to deal with them that are much less injurious than others.

I am in favor of cutting out a huge range of tax breaks for companies - basically going to a flat tax of 25%. We'd collect far more corporate tax than we now do. Hell, even Ronald Reagan raised GE's taxes. This is getting to the point of absolute farce.

I am also in favor of raising taxes on higher earners, and yes, that not only includes the Buffets, and Gates, but even marginally for singles earning 55K and above and households earning 75K and above.

I am also in favor of broadening the personal tax base by eliminating certain exclusions for income for people who are getting disproportionate benefits. In other words, I would like to change certain provisions of tax law, one example being setting a limit on the amount of tax-exempt income any individual can receive, such as on no-AMT bonds. It's very important that people should be able to save tax-free for retirement, but there should be a limit to it. I would set that limit at 5K tax-free investment income per individual, and after that impose a 10% federal tax step with three brackets stepping 5%. I.E. if you got 10K tax-exempt you'd pay 10% on the second 5K, and if you got 20K in tax exempt income you'd pay 10% on the second 5K, 15% on the third 5K, and 20% on the fourth 5K and up.

You would be amazed at how much extra income tax you would collect just with that one change. Obviously most of it would come from the "rich".

I'd add 1% to the current Medicare tax and hike hospital benefit payments by 15%, which would stop the escalation of health care costs for the privately insured. And I would cut out certain benefits for middle-income people, but in return I'd try to make sure that they really did have a safety net for their old age or if they have reverses. I think it is a fair trade.

I wouldn't raise the cap on SS taxes, because then you'd have to pay extra benefits later. Instead I would change the income tax steps so that about when SS kicks out, an extra 5 % of income tax kicks in. I see no reason why someone earning 150K a year should be paying a lower effective tax rate on that last 25K of income than someone making 75K.

I could write a lot more. If that makes me right wing, so be it. Somehow the GOP is not besieging me asking me to run for office. If believing that what's really true is false is required to be a Democrat, then I want no part of it.

But here's the rub. In December of 2010, a Democrat-controlled House, Senate and President cut taxes substantially for people earning 75 or 125K a year, while raising them on anyone who earned less than 20K. I want no part of that either.

I've had it with the funny money and the fakery. The more we pretend these numbers don't exist, the more the people who really need help get screwed. So I am not in the mood to take a statement like yours with patience.

[rfranklin]

24. I agree with everything you propose...

However, when I hear that the government should be run like a business (which that document was putting forth) I get a whiff of Republican horse manure.

[Yo_Mama]

25. Oh, it's not a business

But you have to do the same sort of cash flow analysis even with charities to figure out what's possible.

I realize that everyone's rubbed raw. That's only sane. The only people who aren't worried and frazzled and a bit angry right now are people who don't give a crap.

Given what we're facing, I fear that only the voters are going to be the ones who are serious about forcing more responsible policies. And as for me, I'm getting allergic to all this talk about the middle class.

I don't want the middle class taxed into oblivion, but the path we are on seems to be trending to some sort of crony-capitalistic/pseudo-socialist/in-club sort of society. Long term it will not work. In the short term, a lot of people will get hurt.

I'd like to jump right over the "big fail" step and move into some saner policies ASAP.

[rfranklin]

26. Here's a good point about running the government as a business...

[taught_me_patience]

16. good post right here. thanks! n/t

[nykym]

12. I for one am getting very tired

of hearing all this dust-up over so called "entitlements". My biggest peeve is the one about SS. It is not broken it is not an entitlement, You and I (for the most part) have paid into this system over the course of our working life, During that time our government has started wars, funded programs enacted tax cuts and so on. One place they have turned to for funding these wars, programs and tax cuts has been the SS Trust fund. They have taken our money and used it for funding their pet projects, leaving IOU's in the form of Treasury Bonds in the trust fund. Now because they have had to cash in some of those bonds to pay benefits there is all this concern over SS not meeting its obligations in years to come. This is a big stinking load they are trying to pass off on us again. We are being lied to from both sides (with the exception of very few) that SS is in dire straights, it is not as all of you here on DU know. All this talk of doom & gloom is to prevent us from learning that they are afraid of what we might actually find out. They all lie and try to cover their tracks. They played with our money and lost now its time to pay up and come clean. Sorry had to rant. Stop them from using our money without paying it back.

[indepat]

15. The extraordinary low effective tax rates (including capital gains and dividends) enjoyed by those

earning a major portion of the income and owning most of the wealth (including large corporations too) must be dealt with in order for the US to avoid default is what Bill Gross and we all know and what Bill should have said. :patriot:

[rdking647]

27. the us can default

technically the US cant really default...technically we can print money to pay off our debts... It would have other consequences but there is nothing technically stopping the fed from just printing money to pay it off

[MadHound]

28. Easy enough, cut defense spending, raise the tax rate on the rich, close corporate tax loopholes,

Those three actions right there would bring in enough revenue to fulfill all of our obligations and then some.