Best of all possible worlds

Your fraudulent Government at work. Obama and Geithner's slight of hand as they rob the people and shuffle the books for re-election and stiff the American workers future social security net.<br></P>On the Road to US Government Debt Default. Jul.10/2011Legally, the Federal government is a month away from bankruptcy. The government, under the direction of Treasury Secretary Geithner, is borrowing money from Federal employees' pension funds to keep the doors open. It's an accounting trick. First, the Federal government funds the pension funds with money. Second, the funds buy Treasury bonds. Third, the government immediately spends the money. It's like Social Security, whose Trust Fund is a pile of IOUs from the government. In mid-May, the government unilaterally defaulted on those Federal pension fund IOUs. That action wiped the obligations off the books. That in turn has allowed the government to operate legally. That is because its total debt is now lower than it was before the default.<br></P>There are two funds involved: the Civil Service Retirement and Disability Fund and the Thrift Savings Plan's Government Securities Investment Fund, known as the G Fund. Both are invested in government bonds, which count as borrowing against the national debt ceiling. Under the Treasury Department's strategy, the government trims the two funds' holdings in those bonds. For the 2½-month period from mid-May until Aug. 2, that's supposed to free up about $214 billion in "headroom" against the debt ceiling, thus allowing the government to borrow a similar amount of money from other sources to keep paying its bills<br></P> "Federal retirees and employees will be unaffected by these actions," Geithner wrote in a letter to lawmakers earlier this week. By law, those accounts must eventually be made whole. The department took similar "extraordinary measures" in 2002, 2003, 2004 and 2006; each time, the G Fund and the CSRDF were made whole with back interest once the ceiling was raised. No one is using the D-word: default, but this is what the procedure really is. This has gone on so often in the past that no one in Washington blinks an eye. It's business as usual. The government pretends that the legal IOUs that it has been presenting to the funds in exchange for real money have been wiped off the books. This is solvency, Washington style. The public does not understand any of this. It also does not understand that the Social Security Trust Fund is a pile of IOUs from the government. Even worse, these IOUs are not counted as on-budget. They are off-budget. What makes the two Federal pension funds different from Social Security is that they are on-budget; hence, by wiping them off the books, the government ducked the debt ceiling bullet. Naturally, new payments are being postponed. That means that the government is spending the money owed to the funds without bothering to issue any IOUs. This saves the government a few million. Every penny counts! This concealed default, when coupled with a reallocation of the monthly "contributions" to the two funds, is all that stands between government spending and the debt ceiling. If that crash takes place in August, there will be a far greater reallocation of government revenues.<br></P>Geithner says that the government will hit the legal debt limit in early August. Nobody knows if he is bluffing. He may have a few other rabbits in his hat, but if so, they are new. The tried-and-true rabbit of defaulting temporarily on Federal pensions has been pulled out of the hat. He says that, once the crisis is behind us, meaning after the Republican House has voted to increase the debt ceiling, that the government will replace the missing pension fund IOUs. If he really believes this scenario, then he is admitting that the politicians are involved in a grand charade. It's all for show. There will be a deal. Geithner is saying that the temporary accounting games the government is playing with the Federal pension funds is part of a political charade. But if the deal cannot be worked out in August, then the Federal government will stop paying more of its bills. We have not been told which ones will not be paid. There will not be an overnight shutdown of the government, but some people who think they have guaranteed salaries or who think they have contracts with the government will find that these promises – these IOUs – are not worth the paper they are written on . . . until the Republican House quits stalling and does what everyone in Washington knows is inevitable. Until then, the contracts will not count when the government is over its spending limit. We are witnessing kabuki theater in a pre-election year. This is why there has been no deal among Obama, the Democrat-controlled Senate, and the Republican-controlled House. They are doing a kind of mating dance about how they are ready to deal, just so long as the others want to deal. But the only thing between official bankruptcy and today is the on-going raid on the pension funds.<br></P> Think about this. Government workers spent years contributing to these funds – taking IOUs – and Geithner is treating the funds as convenient cookie jars. He has assured the victims of this contract-breaking, crisis-delaying theft of $214 billion of IOUs that the government will replenish the cookie jars just as soon as the crisis is over.<br></P>Until such time that the debt ceiling is legally raised, Washington will continue to rob Peter to pay Paul. Of course, this is the premise of Washington politics at all times, but this time, the victimized Peters are government employees. This is the sweet fiscal irony of the budget impasse. The middlemen in the great Peter-to-Paul wealth transfer programs are finding that they have become the targets of the senior administrators of the great heist. Instead of taxpayers coming up with the money to finance the transfers, the middlemen are. Civil-Service-protected, salaried employees of the government are now on the paying side of the wealth-transfer process. It could not have happened to a more deserving bunch.<br></P> Here is what impresses me most. First, the default on $214 billion of Treasury debt did not get a headline on the front pages of America's press. This was not a prime-time story on the evening news shows. Second, the arcane nature of the retirement fund programs remains arcane. The public does not understand that the great heist is long behind us. It has been going on since 1937. Political deception is part of the American way of life. It is right up there with mom and apple pie. In fact, it's way above mom and apple pie. The tell-all biographies of the children of famous celebrities have long-since undermined mom, and the food police are after apple pie. But nobody writes a best-selling book called Franklin Dearest on the origins of Social Security. Third, there are no legal repercussions of a default on $214 billion of government debt. There are no class-action lawsuits. How could there be? The Federal government is legally sovereign. It cannot be sued in any Federal court unless it consents to the lawsuit.<br></P> This should send a message to anyone who is alert to what is going on. The U.S. government can default at any time. It is not bound by law. If, in order to obey one law, such as the debt ceiling, senior officials think it should violate another law, such as keeping pension fund obligations on the books, someone is going to get stiffed. Politics will decide who gets stiffed.<br></P>