Count Jim Grant among one of the first of a growing number (which includes SLL) pointing out that the central bank emperors and empresses are wearing no clothes. Grant has been noting imperial nudity for year. From Grant, of Grant’s Interest Rate Observer, via zerohedge.com:
April 15 comes and goes but the federal debt stays and grows. The secrets of its life force are the topics at hand— that and some guesswork about how the upsurge in financial leverage, private and public alike, may bear on the value of the dollar and on the course of monetary affairs. Skipping down to the bottom line, we judge that the government’s money is a short sale.
Diminishing returns is the essential problem of the debt: Past a certain level of encumbrance, a marginal dollar of borrowing loses its punch. There’s a moral dimension to the problem as well. There would be less debt if people were more angelic. Non-angels, the taxpayers underpay, the bureaucrats over-remit and everyone averts his gaze from the looming titanic cost of future medical entitlements. Topping it all is 21st-century monetary policy, which fosters the credit formation that leads to the debt dead end. The debt dead end may, in fact, be upon us now. A monetary dead end could follow.
As to sin, Americans surrender, in full and on time, 83% of what they owe, according to the IRS—or they did between the years 2001 and 2006, the latest period for which America’s most popular federal agency has sifted data. In 2006, the IRS reckons, American filers, both individuals and corporations, paid $450 billion less than they owed. They underreported $376 billion, underpaid $46 billion and kept mum about (“nonfiled”) $28 billion. Recoveries, through late payments or enforcement actions, reduced that gross deficiency to a net “tax gap” of $385 billion.
This was in 2006, when federal tax receipts footed to $2.31 trillion. Ten years later, the U.S. tax take is expected to reach $3.12 trillion. Proportionally, the 2006 gross tax gap would translate to $607.7 billion, and the net tax gap to $520 billion. To be on the conservative side, let us fix the 2016 net tax gap at $500 billion.
Then there’s squandermania. According to the Government Accountability Office, the federal monolith “misdirected” $124.7 billion in fiscal 2014, up from $105.8 billion in fiscal 2013. Medicare, Medicaid and earnedincome tax credits accounted for 75% of the misspent funds—i.e., of those wasted payments to which government bureaus confessed. “[F]or fiscal year 2014,” the GAO relates, “two federal agencies did not report improper payment estimates for four risk-susceptible programs and five programs with improper payment estimates greater than $1 billion were noncompliant with federal requirements for three consecutive years.” It seems fair to conclude that more than $125 will go missing in fiscal 2016.
Add the misdirected $125 billion to the unpaid $500 billion, and you arrive at a sum of money that far exceeds the projected fiscal 2016 deficit of $534 billion.
Which brings us to intergenerational self-deception. The fiscal outlook would remain troubled even if the taxpayers paid in full and the bureaucrats stopped wiring income-tax refunds to phishers from Nigeria. Not even a step-up in the current trudging pace of economic growth would put right the long-term fiscal imbalance. So-called non-discretionary spending, chiefly on Medicare, Medicaid and the Affordable Care Act, is the beating heart of the public debt. It puts even the welladvertised problems of Social Security in the shade.
To continue reading: Jim Grant Asks When The World Will Realize “That Central Bankers Have Lost Their Marbles”
