The Wall Street crew that wants to cut your Social Security and Medicare benefits are sensing that victory is in sight. They have managed to knock jobs completely off the agenda and have made deficit reduction the near exclusive focus of economic policy in Washington. They are now setting the stage to have the Congressional "super-committee" produce a deal that will mean large cuts in both programs.
The backdrop for these cuts is that the country is in crisis and that we have no choice. A central part of this story is that the stock market crashed last week in response to the Standard and Poor's downgrade of U.S. government debt. The Wall Street crew and their allies in the media and Congress will tell the country that if we don't have the cuts in Social Security and Medicare demanded by S&P then we run the risk of further downgrades. This raises the prospect of further market panics and the complete wreckage of the economy.
This story has as much credibility as John Edwards' tales of marital bliss during his presidential campaign. First, every informed investor knows S&P's sterling track record of missing everything in sight. It gave top investment grade ratings to hundreds of billions of dollars of subprime mortgage-backed securities, to Lehman until its bankruptcy, to AIG until its collapse, to Enron until just before its collapse. They know about its $2 trillion arithmetic error in assessing U.S. indebtedness.
They also know that S&P, like the other credit rating companies, is very concerned about the final wording of rules that are being written as part of the Dodd-Frank financial reform bill. That is why it is far more likely that the downgrade was done with the hope of currying favor from powerful political figures than out of the belief that the government will be unable to pay its debt.
This is why the markets completely laughed off the S&P downgrade. Yes, the markets completely laughed off the S&P downgrade. Let's say that a third time just so that even a Washington Post editor can understand it: the markets laughed off the S&P downgrade.
The S&P downgrade was supposed to mean that it is now more likely that the U.S. government will not be able to pay its debt than previously believed. If the markets took this warning seriously then they would attach a higher risk premium to U.S. government bonds. That would mean that bonds would fall in price and the interest rate on government debt would rise.
But the exact opposite happened. U.S. government bonds soared in price. The interest rate on Treasury bonds plummeted to less than 2.2 percent, near-record lows. In other words, investors voted with money as loudly as possible that they view U.S. government debt as a very safe asset and that the S&P crew doesn't have a clue.
There is an obvious alternative explanation for the stock market plunge which also explains the flight to government debt. The euro zone's debt crisis spread from relatively small countries like Greece and Ireland to the euro zone giants, Spain and Italy. If these countries defaulted on their debt it would almost certainly lead to the collapse of several major European banks.
This in turn could lead to the sort of financial freeze-up that we saw after the collapse of Lehman in the fall of 2008. This would mean another economic free-fall with the economy shedding millions of jobs as normal financial flows were blocked.
The euro zone collapse scenario is genuinely frightening and can easily explain why the markets would be panicked. But the moral of the euro collapse story is to get competent people running the European Central Bank who can prevent this sort of crisis. Cutting Social Security and Medicare will not save the euro.
However the Wall Street crew knows that most people do not follow the economy and finances closely. So they just made up a bogus story with the hope that the country would buy it. Thus far they have already gotten politicians and reporters to push their line that the debt downgrade led to the stock market plunge.
Needless to say, those pushing for cuts in Social Security and Medicare will freely use the story of the downgrade market plunge to advance their agenda without fear of ridicule from the media. As a result, we can expect a continual parade of public figures saying that we need big cuts in these programs in order to prevent another market crash and economic collapse.
If these programs are to be protected, it is essential that the public provide the missing ridicule. Any politician who has so little understanding of financial markets and the economy to blame the stock market plunge on the downgrade should not be involved in designing economic policy. Any reporter or columnist who makes such a connection should be in a different line of work.
People who understand economics know that Social Security and Medicare have nothing to do with the country's economic problems. Unfortunately such people have been virtually excluded from the national economic debate by the people with money who want to undermine these programs.
Follow Dean Baker on Twitter: www.twitter.com/DeanBaker13
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Richard (RJ) Eskow: Shipwreck!
Low taxes and excesive spending on war got us here, why is it that 'entitlement' spending cuts are the only thing that Teapublicans espouse. If they had a real interest in helping the country pull itself back to 2000, when we had a balanced budget, then everything would be on the table.
We need responsible journalism that's goal is to search for the truth and not to pander to specific ideologies. Truth is SS and Medicare are funded by their own set of taxes and are not contributing to the national debt. In fact money from the Social Security fund has been taken to pay for things like defense spending. So in fact SS money has decreased our deficit.
The reason we have had a rise in entitlement spending is because we are in the middle of a huge recession with levels on unemployment not seen since the great depression. Of course we are going to be spending more on programs that help the unemployed and underemployed.
We do need to do away with medicare however and go to a single payer system. For profit health care is not a way any world leading country should be run, and with the health care lobbyists convincing politicians that they may not allow medicare to negotiate prices the cost of the system is skyrocketing.
Just who is the mythmaker in this scenario?
SS is older than most of us, Medicare is younger than I am, seniors weren't dying in the streets.
SS goes to us seniors, Medicare goes to the medical industry, we don't get Medicare checks.
SS is solvent, Medicare is not. Because the US medical industry is overpriced and overused.
End Medicare, give seniors more SS instead. Let us decide whether to spend it on food and shelter, things that improve our health, rather than useless drugs, tests and procedures. You may disagree, but it's our lives, our health, our money. Don't patronize us, we're old, not senile yet :-)
End Medicare Part D, that massive giveaway to US drug dealers. Ban drug ads from TV.
No questions asked by anybody - -
http://www.bluelight.ru/vb/threads/556935-Feds-arrest-111-for-Medicare-fraud-in-Florida-and-other-states
Ten people with Tampa Bay area ties were among the more than 100 doctors, nurses, physical therapists and others charged today with Medicare fraud, part of a massive nationwide bust that officials said snared more suspects than any other in history.
More than 700 law enforcement agents fanned out to arrest 111 people accused of illegally billing Medicare and other government programs for more than $225 million, federal officials said. It is the latest in a string of crackdowns in the past two years [since Obama became President] as authorities struggle to pare fraud believed to cost taxpayers up to $90 billion annually.
The big boys have learned how to scare the average investor, and they did it well. Cause a run, drive prices down. Next day, buy cheap, sell high. Repeat as necessary.
(If my lenders are worried about my debt, my interest rate goes up, not down.)
I've held corporate bonds, including unfortunately Worldcom :-( Suppose a company is losing money, but refuses to raise revenue or prices. That company is bound to fail, doesn't deserve AAA rating. No different for US.