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Old July 19th, 2006, 01:56 AM   #1
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Default Attn. Liberals

Here is what your socialist utopia will get you.

Fed's researcher: 'Very high' taxes, inflation coming
Professor funded by Federal Reserve warns of tumultuous economy

Posted: July 19, 2006
1:00 a.m. Eastern

A professor whose new research funded by the Federal Reserve concluded the United States government will fail financially now is warning Americans they may be facing major increases in both taxes and inflation.

Prof. Laurence Kotlikoff

"There's a very good chance of very high taxes in the future, and good chance of very high inflation," Boston University Professor Laurence Kotlikoff told WorldNetDaily yesterday.

Last week, Kotlikoff's research report for the Federal Reserve Bank of St. Louis had talked about the government's potential bankruptcy, given the pension and Medicare payments that are expected to confront officials in coming years.

His estimate is the federal government is facing future pension, budget deficit and welfare liabilities of $65.9 trillion, about five times the U.S. GDP and almost twice the size of the nation's wealth.

He said history is littered with such national tragedies, with nearly two dozen examples in just the last century, where governments like the United States have outspent their ability to repay. His report said solutions could include doubling personal and corporate income taxes or slashing Social Security and Medicare benefits by two-thirds.

But given "the fiscal irresponsibility of both political parties," the professor sees the most likely scenario for maintaining solvency as the government simply printing money to pay its bills.

The prospect of such drastic measures led one of the nation's leaders in the fight for restraint in federal spending to conclude retirees-to-be could be on their own.

"Learn about ways to accept responsibility," a spokesman for Rep. Ron Paul, R-Texas, told WorldNetDaily. "Unless and until you have that mindset, you're dealing with an illusion of the government providing security in the future."

Jeff Deist, Paul's press secretary, says relying on the warm fuzzies of Social Security for your future "will get you nowhere."

"Learn history and that it can happen," he said, citing several recent hyperinflationary situations in which the old adage of a wheelbarrow of money being needed for a loaf of bread wasn't far off. In Argentina a few years back currency ended up with 20 percent of its original purchasing value, and Mexico also suffered during its peso crisis.

Kotlikoff says the answers to the problem cannot be set in stone. "Regular bonds, when inflation takes off and interest rates take off, their value will go down tically." Real estate investments are good during periods of inflation, but more hazardous if those rising prices don't happen as expected. He said it might be more advantageous to put money into a Roth 401K, rather than traditional 401K, to pay the taxes now because future income could face much higher tax rates.

"There are a lot of scenarios, but at some point, these liabilities are going to hit everybody: We're spending something like over $30,000 per person per year for Social Security and Medicare. Multiply that by 77 million baby boomers. That's a big number," Kotlikoff said.

The results of governments consistently spending more money than they take in are evident throughout history, he said. What happens is this: The government cannot pay bills so it borrows more money. As more and more debt accumulates, the bond market gets nervous. Then interest rates go up. Then the interest rates have to be pushed lower to keep the economy functioning and the government prints money and buys bonds, leaving the currency with less value. And repeat.

Paul, whose record in Washington includes unabated efforts to limit government and lower taxes not to mention a September 2002 call for the total abolition of the Federal Reserve continues to advocate for a smaller government, and a smaller bill to run government.

His spokesman, Deist, noted that the simple solution is to stop spending money.

"We could cut the federal spending in half, and still be larger than in 1990," he said. This year's federal budget is approaching $2.7 trillion.

"Does anyone really believe that in 1990 government was uncomfortably small and emaciated? That's perous," Deist said.

His reaction to the report from Kotlikoff initially was surprise.

"Occasionally, somebody associated with the Federal Reserve Bank slips up and says something relatively truthful," he said. "It's shocking not in what it said, but that it was written at all."

He said Kotlikoff's work exposes the myth of the $9 trillion national debt. "Those are specific payments on the book. The Medicare and Social Security leviathan that's just sitting out there never had been documented in terms of debt. But it's a future obligation every bit as much as the debts that are officially listed."

He said Paul believes the consumer first should have the mindset of self-reliance.

"They may well be on their own when it comes to their retirement years from now," he said, adding the congressman does not advocate eliminating Social Security benefits, but maintains there has to come a day of balance.

Microsoft chief Bill Gates "will receive the maximum benefit from Social Security (at his retirement)," Deist noted. "Social Security never was designed to become what it has become a political juggernaut, an absolute sacred cow."

Federal Reserve officials did not return requests for comment for this story
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