What''s to stop the Fed from winning the gold game if you can''t call their bluff?

Section:

Both Parties Get Blame for the Economic Mess

By John Crudele
New York Post
Tuesday, July 27, 2004

http://www.nypost.com/seven/07272004/business/28134.htm

Pete Peterson may be the most qualified man to
discuss the American economy. Not only is Peterson
a former U.S. commerce secretary and chairman of the
New York Federal Reserve Bank, but he now chairs
probably the most successful Wall Street investment
banking firm, The Blackstone Group.

Peterson has been called many things but when it
comes to the long-term future of the U.S. economy
-- which he sees as confronting some serious issues
-- he can best be described as persistent.

I sat down with Peterson the other day to discuss his
recently published best-selling book, "Running On
Empty" (Farrar, Straus and Giroux).

Me: Pete, I've known you for a good while. You are a
very accomplished, very rich man. Now you've written
another book that raises serious questions about the
future of the U.S. economy. Why trouble yourself with
this?

Peterson: This is going to sound a bit sanctimonious
and maybe self-righteous, but I've got five children and
nine grandchildren and I spend a lot of time thinking
about them. I've been deeply moved by the German
philosopher, Banhoeffer, who said, "The ultimate test
of a moral society is the kind of world it leaves to its
children." I think we're failing that test.

Me: Do Americans care about these problems --
Social Security and the federal budget, the so-called
twin deficits? Do they even know about the problems?

Peterson: The American people have been badly
served and deceived by not only our political leaders
but the media in the sense of being so dominated by
the short term. I know the vast majority of parents
and grandparents are not coldhearted about their kids
and their grandkids. They have simply been badly
misled. For example, I consider the Social Security
trust fund an oxymoron. It shouldn't be trusted, and it's
not funded. Our own Treasury Department reports we
have $44 trillion in unfunded liabilities in our entitlement
programs. That's more than all the net worth in the
country.

Me: You say in the book that the cost of Social
Security and Medicare will require 56.7 percent of
workers' taxable payroll in about 36 years. You think
people will care then?

Peterson: This is my point. We keep talking about
the social contract, the presumed obligation of the
young to keep paying for the rising cost of these
unfunded benefits. A contract when I went to college
required a meeting of the minds of both parties. I've
wanted to ask my 5-year-old grandson whether he's
fully aware of his projected future taxes. I'm not
saying taxes would actually rise that far. The
economy would break first, and with that would come
profound political and social unrest. But why should
we put this economy and our children through that
kind of wrenching trauma when we could reform
these programs now?

Me: In your book, you blame the Republicans, as
well as the Democrats. You're a Republican. Can
your party be brought back to fiscal responsibility?

Peterson: I always thought my party was about
fiscal conservatism. We have morphed into a kind
of any-tax-cut-any-time mentality. And some big
spenders have joined us in the Republican Party.
Now we have the worst of both worlds fiscally -- the
biggest tax cuts and the big spending increases.
What's ironic about this is that the most
conservative sectors of the Republican Party agree.
The Cato Institute refers to this as a "spending
explosion." Dick Armey says we can't pin this one
on the Democrats. We're in charge of both the
houses and the White House.

Chuck Hagel, a conservative, says this [Republican]
party has lost its moorings.

The Democrats, on the other hand, have never met
an entitlement they didn't like. Even though many of
them will privately admit that Medicare as now
constituted is unsustainable, their principal complaint
about the Medicare drug bill is that it doesn't go
nearly far enough.

The question is: What can we do about it?

There are two approaches, one far more constructive
than the other.

First, have a massive truth-telling effort, where the
American people really understand what we are
inflicting on the future and their kids. Then, bold
action by a president who is willing to show
leadership.

Both the current and the previous presidents set
up Social Security commissions and then
proceeded to flush them.

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