by Dale Coberly

I wrote the following note to Bruce Krasting after our earlier exchange on Angry Bear. He sent the reply below, and agreed to have it be printed here with the disclaimer that it was not originally intended for publication. My reply to him is in comments, at his request.

COBERLY wrote:

I have to thank you for raising the subject of the bond market. It was something I didn’t know about and will have to try to learn.
Not to be a bond trader… just not in the genes… but to anticipate where the other guys are coming from. They don’t always say.
Heck, we had to beat it out of you.


I learned a fair bit in the process. I understand the scope of this better as a result.

I understand the attitude, “Don’t touch SS. If there is problem, fix it outside of tinkering with SS.”

I do think this is going to come up for discussion in the next year or so. The debate that we framed will be part of that. Tinkering with SS can potentially have beneficial impacts to the ratio of Public vs. Intergovernmental debt. This benefit could last 5-8 years depending on what is done. Right in the scope of the election cycle. So this makes the fiscal side of this a political issue. No Administration that was thinking straight would set a course that might lead to a blow up in the debtmarket.

The numbers are so large. Others will see the shift of this ratio as a negative as I do. There is just so much public sector borrowing that can be accomplished. There is a broad awareness of this by those who think 2-5 years out. I am sure that Larry Summers, Bernanke and others are looking at what is coming and looking for ways to stall or delay the negative impacts. (not just SS, across the board of the intergovernmental side)

So yes, some non SS issues (or side effects of SS) are going to become factors in evaluating this. Steve Goss would be remiss if he did not make this case privately. He understands SS’s important role in the intergovernmental picture. It is his ‘wild card’.

The best argument against this is yours. Fix the problem outside of SS. I have come to understand that this is intellectually correct. But I do not think that it will be the basis of the choices that I believe will be implemented over the next few years. What would you do if you were the Boss? Tinker with SS or increase income taxes? I know what you would do, but you are not the boss. The folks who run the show would do anything that they can do, short of raising income taxes.