Newswire 1/27/2011

[The Liberty Insight Newswire is an aggregation of what we consider to be important financial and political news and commentary from across the web.]

My next post will discuss government numbers, and why they should not be taken at face value. From rosey projections to deceptive methodologies, government numbers paint a distorted view of the future of our economy. This bad information causes policy makers to make poor decisions and can have disastrous effects for investors and anyone trying to plan for their future. The articles in this week’s newswire provide a few examples of government numbers in action.

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Social Security fund slides into permanent deficit
Associated Press, Jan. 27, 2011

As recently as three years ago the government projected Social Security to have a negative cash flow starting in 2016 and become insolvent around 2080. That timeframe has condensed considerably as the program went into deficit last year and is now expected to go broke in 2037 if it is not adjusted. That means that every year from here out, the government will need to take more and more money from the general fund to use for Social Security payouts. Some of the shortfall will be reduced by decreasing benefits, thus squeezing retirees. Some will likely come from increased payroll taxes, squeezing workers. Where will the rest of the money come from? Borrowing and printing.

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Budget Deficit Will Grow to $1.5 Trillion, CBO Says
Bloomberg, Jan. 26, 2011

Two years ago the CBO projected the 2011 budget deficit would be just under $1 Trillion. Last year the forecast for 2011 was bumped up to $1.07 T. Now the CBO says the 2011 budget deficit will be $1.5 T. Much of this increase is due to the extension of the Bush tax rates. However, attributing the full difference to the tax extensions is disingenuous, because it assumes the increased tax rates would not have negatively affected the economy, reducing taxable income and increasing the need for government assistance, and that people wouldn’t change their behavior to avoid higher rates.

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Food Stamp Map (VIDEO): Usage increased over 60% Since 2007
Huffington Post, Jan. 26, 2011

According to the government, the recession officially ended in June 2009. While the GDP may be rising as the government borrows and spends huge amounts of money, it sure hasn’t shown up on mainstreet. The number of people using food stamps continues to rise.

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Why You Can’t Trust the Inflation Numbers
Wall Street Journal, Jan. 26, 2011

This article on inflation helps demonstrate why investors and Americans in general need to be skeptical about “official” numbers. Small misrepresentations in the rate of inflation can have huge financial implications when compounded over time.

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