2–At its root Social Security is, and always has been, an inter-generational transfer of wealth….

4–…since 2010 Social Security’s cash expenses have exceeded its cash receipts; negative cash flow last year was about $55 billion, according to the latest report from the system’s trustees. While credited interest is still more than enough to cover the deficit, that will only be true until 2020. After that, Social Security will begin redeeming its hoard of Treasuries for cash to continue paying benefits ”” as was the plan all along.

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Stan Druckenmiller makes an unlikely class warrior. He’s a member of the 1%””make that the 0.001%””one of the most successful money managers of all time, and 60 years old to boot. But lately he has been touring college campuses promoting a message of income redistribution you don’t hear out of Washington. It’s how federal entitlements like Medicare and Social Security are letting Mr. Druckenmiller’s generation rip off all those doting Barack Obama voters in Generation X, Y and Z.

“I have been shocked at the reception. I had planned to only visit Bowdoin, ” his alma mater in Maine, he says. But he has since been invited to multiple campuses, and even the kids at Stanford and Berkeley have welcomed his theme of generational theft. Harlem Children’s Zone President Geoffrey Canada and former Federal Reserve Governor Kevin Warsh have joined him at stops along the tour.

Mr. Druckenmiller describes the reaction of students: “The biggest question I got was, ‘How do we start a movement?’ And my answer was ‘I’m a 60-year-old washed-up money manager. I don’t know how to start a movement. That’s your job. But we did it in Vietnam without Twitter and without Facebook and without any social media. That’s your job.’ But the enthusiasm””they get it.”

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Standard & Poor’s is only raising half a cheer at the deal:

“We believe that to date, the shutdown has shaved at least 0.6 per cent off of annualised fourth-quarter 2013 GDP growth, or taken $24bn out of the economy.

“The short turnround for politicians to negotiate some sort of lasting deal will probably weigh on consumer confidence, especially among government workers that were furloughed. If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their cheque books. That points to another Humbug holiday season.”

Read it all (if necessary another link is there).

Is the US dollar’s position as the reserve currency of the world imperiled as a result of the debt limit showdown in Washington?

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“We took some bread crumbs and left an entire meal on the table,” said Senator Lindsey Graham, Republican of South Carolina. “This has been a really bad two weeks for the Republican Party”–From the online version of last night’s New York Times

I will take comments on this submitted by email only to KSHarmon[at]mindspring[dot]com.

With just two days to go before an Oct. 17 deadline to raise the nation’s debt limit, 51% of the public views a rise in the nation’s debt limit as “absolutely essential” in order to avoid an Half View Debt Limit Increase as Essential, More than a Third Say it is Noteconomic crisis, while 36% think the country can go past the deadline without major problems.

Public concern over breaching the debt limit deadline has risen only slightly from a week ago, when 47% said a rise in the debt limit was essential and 39% said it was not.

Those who see no dire economic consequences resulting from going past Thursday’s deadline are not only skeptical about the timing ”“ most say there is no need to raise the debt limit at all. Nearly a quarter of all Americans (23%) ”“ including 37% of Republicans and 52% of Tea Party Republicans ”“ believe the debt limit does not need to be raised at all.

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Looks like it will go through Jan 15, and there will be a panel create to work on deficit reduction.

One of many tweets:

”@j_strong
“It’s all over. We’ll take Senate deal” … “People are thinking about primaries, they really are”

Top Senate leaders on Monday said they were within striking distance of a deal to sidestep a looming debt crisis and reopen the federal government two weeks after a partisan deadlock forced it to close.

Fourteen days after a partial government shutdown began, senators signaled a bipartisan resolution could come soon.

“I’m very optimistic we will reach an agreement that’s reasonable in nature this week to reopen the government, pay the nation’s bills and begin long-term negotiations to put our country on sound fiscal footing,” Senate Majority Leader Harry Reid (D., Nev.) said on the Senate floor.

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…it is still foolish to ignore the leverage that the individual mandate gives opponents of Obamacare. America’s healthcare system for the elderly (Medicare, plus Medicaid for nursing-home care) is already edging the country toward generational war because Washington will sooner or later be forced to choose between drastic limitations on coverage in those programs or drastic increases in taxes on the decreasing portion of working Americans. Now we’re adding a parallel obligation on younger workers to subsidize healthcare for fiftysomethings.

What to do? The path of least political resistance is to tough it out, hoping younger households will be unable to figure out what’s happening, or simply unwilling to throw in their lot with opponents of gay marriage, marijuana reform and the like. Alternatively, we could start paying attention to the building crisis as younger households scramble ever harder for a middle-class living standard.

And none too soon, because the signs of generational conflict are already appearing.

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What started as a mad dash to strike a deal to lift the federal debt limit slowed to a crawl over the weekend as stalemated Senate leaders waited nervously to see whether financial markets would plunge Monday morning and drive the other side toward compromise.

Republicans seemed to think they had more to lose. After talks broke down between President Obama and House leaders, GOP senators quickly cobbled together a plan to end the government shutdown ”” now entering its third week ”” and raise the $16.7 trillion debt limit. Senate Minority Leader Mitch McConnell (R-Ky.) then asked Majority Leader Harry M. Reid (D-Nev.) to elevate negotiations to the highest level.

On Sunday ”” with the Treasury Department due to exhaust its borrowing power in just four days ”” Reid was wielding that leverage to maximum advantage. Rather than making concessions that would undermine Obama’s signature health-care initiative, as Republicans first demanded, Democrats are now on the offensive and seeking to undo what has become a cherished prize for the GOP: deep agency spending cuts known as the sequester.

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Asthma ”” the most common chronic disease that affects Americans of all ages, about 40 million people ”” can usually be well controlled with drugs. But being able to afford prescription medications in the United States often requires top-notch insurance or plenty of disposable income, and time to hunt for deals and bargains.

The arsenal of medicines in the Hayeses’ kitchen helps explain why. Pulmicort, a steroid inhaler, generally retails for over $175 in the United States, while pharmacists in Britain buy the identical product for about $20 and dispense it free of charge to asthma patients. Albuterol, one of the oldest asthma medicines, typically costs $50 to $100 per inhaler in the United States, but it was less than $15 a decade ago, before it was repatented.

“The one that really blew my mind was the nasal spray,” said Robin Levi, Hannah and Abby’s mother, referring to her $80 co-payment for Rhinocort Aqua, a prescription drug that was selling for more than $250 a month in Oakland pharmacies last year but costs under $7 in Europe, where it is available over the counter.

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The Senate’s top two leaders have asserted control over budget negotiations with the White House for a deal to reopen the federal government and avoid a default on the nation’s debt.

Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., met Saturday morning with Sen. Lamar Alexander, R-Tenn., and Sen. Charles Schumer, D-N.Y., to begin preliminary discussions.

“I hope that our talking is some solace to the American people and to the world,” Reid said. “This should be seen as something very positive, even though we don’t have anything done yet.”

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….the Federal Disability Insurance Program…serves nearly 12 million people — up 20 percent in the last six years — and has a budget of $135 billion. That’s more than the government spent last year on the Department of Homeland Security, the Justice Department, and the Labor Department combined. It’s been called a “secret welfare system” with it’s own “disability industrial complex,” a system ravaged by waste and fraud. A lot of people want to know what’s going on. Especially Sen. Tom Coburn of Oklahoma.

Tom Coburn: Go read the statute. If there’s any job in the economy you can perform, you are not eligible for disability. That’s pretty clear. So, where’d all those disabled people come from?

The Social Security Administration, which runs the disability program says the explosive surge is due to aging baby boomers and the lingering effects of a bad economy. But Sen. Tom Coburn of Oklahoma, the ranking Republican on the Senate Subcommittee for Investigations — who’s also a physician — says it’s more complicated than that. Last year, his staff randomly selected hundreds of disability files and found that 25 percent of them should never have been approved — another 20 percent, he said, were highly questionable.

Read it all or better still watch the video.

A proposal from Sen. Susan Collins is emerging as one potential way to dig lawmakers out of a government shutdown and possibly also avoid a potentially catastrophic debt default.

The moderate Maine Republican, whose vote will be essential to any fiscal deal, is circulating a rough plan to reopen the government, repeal the medical device tax and provide agencies with greater flexibility in implementing the sequester. The initial reception has been positive and may be the beginnings of a bipartisan solution to end the intractable impasse between House Republicans and Senate Democrats.

Collins said Sens. Kelly Ayotte (R-N.H.) and Lisa Murkowski (R-Alaska), who are also being watched as potential GOP votes to end the fiscal standoff, have signed onto the proposal. And Collins said she has spoken to “several Democrats” about her plan, which she hopes “at least provides concepts that could be the basis for us reopening government.”

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As the government shutdown enters its second week, some religious groups are starting to feel the pinch, and they’re also finding ways to reach out.

More than 90 Catholic, evangelical and Protestant leaders have signed a statement rebuking “pro-life” lawmakers for the shutdown, saying they are “appalled that elected officials are pursuing an extreme ideological agenda at the expense of the working poor and vulnerable families” who won’t receive government benefits.

Starting Wednesday, evangelical, Catholic and mainline Protestant leaders will hold a daily “Faithful Filibuster” on Capitol Hill with Bible verses on the poor “to remind Congress that its dysfunction hurts struggling families and low-income people.”

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A senior Chinese official has warned that the “clock is ticking” to avoid a US default that could hurt China’s interests and the global economy.

China, the US’s largest creditor, is “naturally concerned about developments in the US fiscal cliff”, vice finance minister Zhu Guangyao said.

Washington must agree a deal to raise its borrowing limit by 17 October, or risk being unable to pay its bills.

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The work that Shaun O’Connell does is required by law, yet now he’s sidelined by the government shutdown.

O’Connell reviews disability claims for the Social Security Administration in New York, checking that no one’s gaming the system, while ensuring people with legitimate medical problems are compensated properly.

Billions of dollars are at stake with this kind of work, yet O’Connell is considered a nonessential employee for purposes of the partial government shutdown.

“If you stick with the semantics of essential and nonessential, you could easily be offended,” says O’Connell, who has worked for Social Security for 20 years.

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The Episcopal bishop of Washington is inviting any couples who had to cancel their weddings on federal property due to the government shutdown to have their ceremonies in a garden at Washington National Cathedral.

Bishop Mariann Edgar Budde said Thursday that the Bishop’s Garden at the cathedral would be offered free of charge to any couples who wanted to hold wedding ceremonies outdoors.

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On the eve of a possible shutdown of the U.S. government, religious leaders denounced the political brinkmanship prevailing in Congress today.

“Shutting down the government will do real damage,” said Rev. David Beckmann, president of Bread for the World, speaking at a press conference today. “Risking our nation’s creditworthiness will do even more damage. Most clearly, the disruption and uncertainty will put the brakes on our economy.”

Unless our nation’s leaders come to an agreement on appropriations for the coming months, the U.S. government will close on Oct. 1, the start of the 2014 fiscal year. If no agreement is reached by Oct. 17 on increasing the debt limit, the country’s creditworthiness will be compromised.

Read it all and follow the link at the bottom to the letter to see the actual signatories.

Biologist Louis Burnett had to move his lab students to a conference room across the parking lot at Fort Johnson. His federal lab, animals and cell cultures are under lock and key.

Burnett’s dilemma is a case example of the ripple effect of the ongoing federal shutdown. As the shutdown enters its third day, the clock keeps ticking insistently for any number of people who don’t work for the federal government but find themselves on the outs because of the political standoff.

Burnett is a research professor at the College of Charleston. But like others in a cadre of college and state researchers, he collaborates on studies, shares office space and makes use of the equipment at the Hollings Marine Lab and the Center for Coastal Environmental Health and Biomolecular Research.

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The federal government moved closer to a partial shutdown Sunday as Republican and Democratic lawmakers showed no signs of negotiating through a standoff over the implementation of President Barack Obama’s health law.

The standoff left little prospect that Congress could reach agreement on terms for funding the government by midnight Monday, when the current fiscal year expires. A shutdown would leave essential services operating but prompt federal agencies to suspend many functions and furlough hundreds of thousands of workers.

Early Sunday morning, after a late night of votes, the House passed a bill delaying the health law by one year and attached it to a plan to fund the government through Dec. 15. It also includes a provision repealing a tax on medical devices that is intended to help finance the health law. That legislation now goes back to the Senate.

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The federal government on Sunday morning barreled toward its first shutdown in 17 years after the Republican-run House, choosing a hard line, voted to attach a one-year delay of President Obama’s health care law and a repeal of a tax to pay for it to legislation to keep the government running.

The votes, just past midnight, followed an often-angry debate, with members shouting one another down on the House floor. Democrats insisted that Republicans refused to accept their losses in 2012, were putting contempt for the president over the good of the country and would bear responsibility for a shutdown. Republicans said they had the public on their side and were acting to protect Americans from a harmful and unpopular law that had already proved a failure.

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Between 2000 and 2012, the number of people in Penobscot County [Maine] receiving Social Security disability benefits skyrocketed, rising from 4,475 to 7,955 ”” or nearly one in 12 of the county’s adults between the ages of 18 and 64, according to Social Security statistics.

The fast expansion of disability here is part of a national trend that has seen the number of former workers receiving benefits soar from just over 5 million to 8.8 million between 2000 and 2012. An additional 2.1 million dependent children and spouses also receive benefits.

The crush of new recipients is putting unsustainable financial pressure on the program. Federal officials project that the program will exhaust its trust fund by 2016 ”” 20 years before the trust fund that supports Social Security’s old-age benefits is projected to run dry.

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There’s plenty of fodder for deficit hawks in a new report from the nonpartisan Congressional Budget Office. In short, the future looks grim….

First, the good news: The CBO projects the deficit will shrink to $378 billion in 2015, or 2.1 percent of the size of the overall U.S. economy. Compared with just a few years ago when the budget gap ballooned as a result of the recession, this marks a nearly unprecedented improvement in the deficit picture. It’s a rapid decline in budget shortfalls not seen since the end of World War II. The national debt will bottom out in 2018, at 68 percent of GDP.

The bad news: From there, the picture gets decidedly less rosy. Budget deficits gradually rise, “mainly because of increasing interest costs and growing spending for Social Security and the government’s major health care programs (Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies to be provided through the health insurance exchanges),” says the report. By 2038, the national debt will reach 100 percent of GDP….

Read it all and follow the link to the actual report.

Under the Affordable Care Act, more insurance plans are expected to start covering the cost of obesity treatments, including counseling on diet and exercise as well as medications and surgery. These are treatments that most insurance companies don’t cover now.

This move is a response to the increasing number of health advocates and medical groups that say obesity should be classified as a disease.

Not everyone thinks this is a good idea. But this summer, the American Medical Association determined that . They followed in the footsteps of the , a health advocacy group that called obesity a disease back in 2008.

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“Unfortunately, we seem to be entering another of those periods of elevated risk,” economists at Bank of America Merrill Lynch wrote last week. Researchers at RBC Capital Markets sounded even more bleak. “Just when you thought the U.S. economy was ready to break out of its lackluster 2 percent growth pace that has dominated the recovery,” they wrote, “reality hits.”

More economic turbulence would be particularly tough for poor and middle-class American workers, who are still struggling amid the historically weak growth following the recession. The typical worker’s income has fallen since the recession ended more than four years ago, and the economy, still far from full employment, is creating far more low-paying jobs than good-paying ones. Polls show that workers remain discouraged by the economic picture, with more than half believing the United States is still in recession.

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One of America’s chief fiscal burdens is the mounting cost of entitlements (Social Security, Medicare, and Medicaid) ”“ an obligation that will only grow larger as baby boomers age. In tackling this problem, the United States should look to what many might see as an unlikely model ”“ the European welfare state, Sweden.

“Usually, U.S. policymakers look to Europe to determine what not to do when it comes to social-welfare policy,” James C. Capretta, former associate director of the US Office of Management and Budget, wrote a few years ago.

But, he continued: “When you are in a hole, the prudent first step is to stop digging, and the United States can indeed gain insight into how to ”˜stop digging’ the entitlement hole” by studying the reforms that some European countries have implemented. Most notably, he suggested, we should study what Sweden and Germany did to cut their long-term government pension commitments.

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The fact that economics tell us to discount — as in make less of — each dollar owed or received in the distant future, however, doesn’t mean a government can ignore those obligations and receipts, especially if there are loads of future obligations relative to receipts.

Take the just-released 2013 Trustees Report on Social Security’s long-run finances. Table IVB6 shows an infinite horizon fiscal gap of $23.1 trillion separating the Social Security system’s projected costs and taxes after taking into account the several trillion in the Social Security trust fund. To give you a sense of how massive this shortfall is — and it grew by fully 8 percent last year alone — it is 50 percent larger than U.S. GDP and almost twice the size of total federal debt held by the public.

Table IVB6 also reports Social Security’s fiscal gap over the next 75 years. It’s much smaller — only $9.6 trillion, and that’s the number people tend to use in discussion. But that number is only 41 percent of the actual economic gap: $23.1 trillion. Thus, the 75-year fiscal gap hides three fifths of the system’s true long-term shortfall.

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The purpose of Social Security is to help families. It reinforces the intergenerational sharing that families already ”” though imperfectly ”” provide. It helps retirees by stabilizing their income, and it helps their grown children, who are relieved of any excessive burden of supporting them. This purpose strongly suggests that the Social Security benefits should be indexed to some measure of the available, aggregate economic pie. That means a formula that looks completely different from the ones being discussed today.

Clearly, something needs to be done: if nothing changes, and the trust fund runs out in 2033, the system would be able to pay only about 75 percent of promised benefits.

The issues are complex, as economic theorists like Henning Bohn at the University of California, Santa Barbara, have shown. But now that an index change is on the table, we should take this opportunity to get it right.

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