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No COLA - Bernanke gets Trumped?

Submitted by Bruce Krasting on 10/12/2010 08:46 -0400

Social Security announced that there will be no increase in benefit
levels for another year. The reason? Deflation. Based on the Cost of
Living index no increase in checks is justified. You might get an
argument on that from the 60+% of the beneficiaries whose primary source
of income is SS. This will impact the macro economic picture.

In the period 2000-2008 the average COLA increase was 3%. Because of the
big eco dump it has been zero for 2010 and now again for 2011.

SSA will pay ~$700b in benefits this year. 3% of that comes to $21b.
That is a pretty important number. Most of the SS checks are spent.
Little of it is saved, so this will impact consumption on a nearly 1 to 1
basis. $21b is 1/4% of our GDP (includes multiplier). Poof!

Does this matter? Sure it does. Economists who forecast growth will have
to knock down their numbers by at least ¼% as a result. There would
have been some multiplier affect from the extra spending, now there
won’t be any. Between the cummulative impact of two years of no
increases and the multiplier this could be a drag on GDP by 1/2% for
2011 versus what has been assumed.

We don’t know what Ben B will do in a few weeks, but we can sort of
guess about what is coming. It will be a longer-term commitment to
acquire Treasury bonds. The high-end estimates are about $100b per month
for a year. Something over a trillion in all. Using those kinds of
numbers, I have seen estimates that the impact will be a positive to GDP
to the tune of a lousy ½%.

So for those that have been believing that Bernanke has written the
economy a put, look again. You just got trumped, by of all things,
Social Security. Big Ben can’t row quick enough on this river. The water
against him is moving too fast.

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Tue, 10/12/2010 - 10:44 | 643076 Bob

I expected my sarcasm to come through loud and clear. I heard ya, razorthin! 8)

Tue, 10/12/2010 - 11:05 | 643150 espirit

"I expected my sarcasm to come through loud and clear".

Maybe not "Bob". As Tyler has suggested, why not utilize the <sarc on> <sarc off> function?

Some people take your crap seriously.

Tue, 10/12/2010 - 11:07 | 643163 Bob

Thanks for feedback, point taken.

Tue, 10/12/2010 - 12:02 | 643328 Montgomery Burns

I got it, and i'm kind of slow.

Tue, 10/12/2010 - 09:57 | 642949 blindfaith

you are absolutely right. I am about to go on Social Security...why? My real estate taxes just went up to pay the salary INCREASES for the public sector workers (that's a laugh). My business is so bad that the ONLY way I can pay my real estate taxes is to go on and take the SS now, and SPEND ALL of it ( the SS check) on my tax bill to pay "workers" who are not spending money to buy my goods. Lets hope these "workers" are spending that money somewhere to help run the economy.

Tue, 10/12/2010 - 09:54 | 642939 Perseid.Rocks

So they think food is getting cheaper ? What you talkin 'bout willis..

Tue, 10/12/2010 - 10:37 | 643062 Fish Gone Bad

Actually it has, at least for the cheap markets I shop. I make it a point to read the Mexican markets flyers, Superior markets, and Stater Brothers. Surprisingly, the 99cents only stores are not the great bargains they were up until a year or two ago.

I was over at Winco last week and saw lobster tails for $8.99 each. That market is real "low rent" and to see lobster there was amazing. The Fiesta chain was sold to El Super, and El Super appears to be cleaning out all the "old merchandise", so things are being sold for dirt cheap. Cans of abalone for $2.99, BIG cans of coffee for $1.99, Tide 50oz 2X for $3.99. Cases of water for $1.99 +CRV.

So prices have indeed plunged (at least where I shop).

Tue, 10/12/2010 - 19:08 | 644712 gmrpeabody

Explains your alias. ;-)

<edit> This was a reply to Fish Gone Bad saying he is able to buy cheap food. How it got here is anyones' guess.

Tue, 10/12/2010 - 11:28 | 643233 Rainman

Southern California is bloated with grocery store chains. I've noticed signifigant markdowns over the past two years and the competition is fierce. One area of markdowns I noticed was the wine selections ( yes, you can buy booze in virtually all supermarkets and drug stores ). Mid shelf wines, typically selling at 12 bucks are marked to $ 7.50 at a high-end Ralphs. Milk seems to be the one item that is steadily creeping up, though.

If inflation is coming to the food aisles, I haven't seen it yet around this neck of the woods...just the opposite.

Tue, 10/12/2010 - 11:50 | 643298 still kicking

You guys are not seeing the big picture, stuff you don't need is cheaper, lobster tails, wine, higher end clothing etc, that's because those things had huge markups and can come down and will because no one is buying them at the old prices. Go look at milk, bread, eggs, flour, any kind of basic meat, it's all creeping up in price and you will buy it because you have to.

Tue, 10/12/2010 - 21:36 | 645024 ArmchairRevolut...

Today on NPR they were talking about how corn prices were rising due to a bad year and how that was going to likely cause price increases for a number of products that depend on corn. It seemed like the beginning of a public relations effort to justify increased prices for basic goods. Somehow they forgot to mention anything about currency manipulation.

Tue, 10/12/2010 - 13:05 | 643538 Shameful

So is the answer a booze based diet? Supersize Me, with Whisky! http://www.youtube.com/watch?v=ssf7088paXA

Tue, 10/12/2010 - 14:51 | 643868 Kobe Beef

I propose Bourbon is a better use of corn than ethanol. Agreed?

Tue, 10/12/2010 - 21:23 | 644991 Blankman

+90 proof

Tue, 10/12/2010 - 13:36 | 643624 still kicking

I like the way you think!

Tue, 10/12/2010 - 10:46 | 643084 chopper read

you must not shop in the grains markets. corn, wheat, soy, oats - through the roof! coming to your local store soon!!!

Tue, 10/12/2010 - 11:41 | 643278 ATG

Commodity prices a fraction of brand name processed food product prices.

http://www.foodtimeline.org/foodfaq5.html#kelloggs

Tue, 10/12/2010 - 11:33 | 643249 Clark_Griswold ...

Chopper,

got any good tickers to look at on those....?

Tue, 10/12/2010 - 13:26 | 643596 chopper read

i'm in the futures market, Clark. ...not sure what the ETF equivalent is.

Tue, 10/12/2010 - 13:34 | 643618 Clark_Griswold ...

Thanks Chopper,

unfortunately I don't dabble in futures, and probably should have gotten myself a bit edumacated on it....lol.

Tue, 10/12/2010 - 09:53 | 642932 99er

US Government: "Who cudda known."

Chart: ES and ZB

http://99ercharts.blogspot.com/2010/10/es-zb_12.html

Tue, 10/12/2010 - 09:50 | 642930 New Revolution

The New Revolution is coming....

Tue, 10/12/2010 - 09:49 | 642926 Sancho Ponzi

Leo:

$21 billion is 1/7% of GDP.

Tue, 10/12/2010 - 11:32 | 643242 cbxer55

When did Leo come into this picture?

He has not posted on it as of yet.

Tue, 10/12/2010 - 12:06 | 643341 Cpl Hicks

Ponzi just knew he was thinking about it.

Tue, 10/12/2010 - 10:20 | 643014 Bruce Krasting

Yes, but there is a multiplier that has to be taken into consideration. I think that any extra money paid by SS has a high multiplier, as the money is spent right away. Similar to food stamps.

In congressional testimony given in July 2008, Mark Zandi, chief economist for Moody's Economy.com, provided estimates of the one year multiplier effect for several fiscal policy options. The multipliers showed that increased government spending would have more of a multiplier effect than tax cuts. The most effective policy, a temporary increase in food stamps, had an estimated multiplier of 1.73.

I should have been clearer on how I got there.

Leo.....

Tue, 10/12/2010 - 18:10 | 644585 ViewfromUnderth...