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Bernanke – My Goal is to Wreck Social Security
In June of each year the Social Security Trust Fund (SSTF) reinvests a significant portion of its investment portfolio in newly issued Special Issue Treasury Securities. The interest rates on these bonds is set by a formula that was established in 1960. The formula was designed to insulate the SSTF from transitory changes in interest rates by averaging market based bond yields over a three-year period.
Bernanke’s Fed has set interest rates at zero the past four years. In 2012 the 1960's formula has finally caught up with the SSTF. It got murdered on this year's rollover.
The following is from the SSA (link). It shows what has matured this year and what new investments have been made. I will be breaking down sections of this report, so don’t get eye strain looking at this:
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Consider the bonds that matured in 2012:
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$135 billion of old bonds matured this year. This money was rolled over into new bonds with a yield of only 1.375%. The average yield on the maturing securities was 5.64%. The drop in yield on the new securities lowers SSA's income by $5.7B annually. Over the fifteen year term of the investments, that comes to a lumpy $86 billion. It gets worse.
Bernanke has pledged that he will keep interest at zero for a minimum of another two years. The formula used to set interest rates for SSA looks back over the prior three years. Therefore, SSA will be stuck with a terrible return on its investments until at least 2017. I anticipate that the formula will result in still lower investment returns for the next five years, but I’ll conservatively use the rates set this year to evaluate the consequences to SSA.
The following looks at what is maturing at SSA:
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A total of $543 billion of securities with an average yield of 5.6% is coming due in the existing ZIRP window. The reduction in income from the 4.2% drop in yield translates to a nifty $23 billion a year, for fifteen years ($350b). It gets worse.
As a result of the Fed’s extended ZIRP policy, and the SSA's interest rate setting formula, it is now a certainty that interest income at SSA is going to substantially drop over the coming decade. The problem is that SSA has provided projections for its interest income over this time period that don’t jive with this reality.
From the 2012 SSA report to Congress:
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The SSTF believes it will earn an average of 4% over this period. That is not possible any longer. I calculate that the most SSA could earn is an average of 2.3% (it could be significantly lower). The drop in yield translates to a reduction in income of $535B over the forecast period. That’s a lot of dollars.
Consider again the base case provided by SSA in April. The following compares the size of the trust fund based on SSA’s estimates and my adjustments for what interest income will be (everything else is constant).
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Based on a realistic assessment of interest income at SSA, the trust fund tops out in 2015, its peak value will be ~$2.823B. The SSTF has reported that the TF will top out at $3,061B, and that milestone will not be reached until 2021. Essentially, the train wreck will happen six years earlier then assumed, and the TF will be $250B short. It gets worse.
The other key ingredients in the SS "pie" are tax receipts from workers and the amount of monthly benefit payments (the assumptions used is that GDP growth will average 4%, and unemployment falls to 5.5% - no recessions over the ten-year horizon). These are not realistic assumptions. This means that once the SSTF hits its peak in 2015, the run off in assets will happen very quickly.
The SSTF has stated that the date in which the TF falls to zero will be 2033. The actual termination date of the TF is much closer than that. It could come as early as 2023.
Anyone who is 55 or older should be worried about this. Based on current law, all SS benefit payments must be cut by (approximately) 25% when the TF is exhausted. This will affect 72 million people. The economic consequences will be severe. The drop in SS transfers translates into a permanent drag on GDP of 2%. In other words, when this happens, the country will be unable to have any significant positive growth for a long time to come.
I know I will get comments from readers who have worked 40 years and paid into SS and now want it back. I tell those folks in advance that I'm sorry, but they will have to accept a cut in benefits. It will happen it about ten-years. Make your plans accordingly. If you don’t like these conclusions, write a letter to Bernanke. It’s well past time that the true consequences of his monetary policies are understood. He’s not just breaking the backs of small savers; he’s killing Social Security.
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Enjoy the fireworks!
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Out of all the criminals with blood on their hands you want the crowd with pitchforks and torches to go to Cher's house first?
Deep79, your statement
"All the FED is doing with ZIRP, QE's, Twist, and so on is just to delay the inivatible. They are praying [delaying?] and praying something new comes around (technology) to get us out of this. "
is quite correct. While I don't deny that the Fed was founded from the start as a corrupt organization, the current situation of declining EROEI of fossil fuels (the lifeblood of industrial civilization) plus increasing demand from new players like China makes a broad decline in US standard of living inevitable. People can fantasize and scheme all they want, but the laws of physics are not subject to repeal.
The committee chairs in Congress and members of the Fed leadership know what time it is as well (or better - they get briefings) as we do on ZH; they are indeed stalling for time and praying for a miracle. Not such a great business strategy, but it's all we got...
Why is it that so many here can't get this point? [still in] Denial?
Just the enabler?
That's not in the charter.
Now it's gone from enabler to economic dictator. Who's enabling whom?
I guess they see it's inevitable that it will all collapse, so let's delay it for a while to allow the rich Banksters time to further line their pockets. Ron Paul said 4 years ago -let the banks go under, liquidate the debt from Fed induced malinvestments and we will have a bad year -and soon recover like we did in the brief depressions of 1907 and 1921 --but if we don't-and continue our insane policies of lining bankters pockets, serial wars and kicking the can down the road -we will have a bad decade. I think it's too late to avoid the bad decade. The question is just how bad -how painful that decade will be. Ron Paul will be seen as a prophet -his legend will grow when his prophecies come true. God help us all. Hang the Banksters!
Clean the slate and then what? Care to wager that all the "plans" contain just more of the same, more "growth is good" insanity?
"Small govt" people are going to be in for a surprise when Their "small govt" doesn't materialize (to protect Their "property rights" [which requires the State function of violence; and once this path is there...]) and the are face with NO govt. I don't plan for what I "want," but for what WILL be: adjust [correctly] or die [well, we're going to die anyway, but perhaps we can teach our children well...]).
Agreed.
Nothing wrong with the FED as an institution, it's just that criminals have been allowed to run it.
You really need to read "The Creature from Jeckyl Island" and then modify your "comment" accordingly. Ignorance, in this case, is not bliss.
I'll get you started with a summary: The FED is an anti-competitive banking cartel whose purpose to fund massive soverign debt by issuing fiat currency, thus degrading that currency via inflation, and then dealing with the resulting financial sector insolvency with taxpayer-funded bailouts to shield the bondholders from any losses. Sound familiar? Ever wonder why bank bondholders never seem to suffer any cramdowns/losses? (Hint: its not an accident)
Then why in the hell were all these other early attempts at central banks in America cut down?
Bank of North America
However, it was thwarted in fulfilling its intended role as a nationwide central bank due to objections of "alarming foreign influence and fictitious credit," favoritism to foreigners and unfair competition against less corrupt state banks issuing their own notes, such that Pennsylvania's legislature repealed its charter to operate within the Commonwealth in 1785.
First Bank of the United States
Several founding fathers bitterly opposed the Bank. Thomas Jefferson saw it as an engine for speculation, financial manipulation, and corruption.[1] In 1811 its twenty year charter expired and was not renewed by Congress.
Second Bank of the United States
Andrew Jackson, who became president in 1828, denounced it as an engine of corruption.
"Abraham Lincoln battled for the right of Congress and the Treasury to hold the awesome power of coining money. He knew that to surrender this power to private banks was ultimately to surrender the sovereignty of America. Adams and Jefferson had warned of this all along. Defying the hidden bankers, Lincoln issued the greenbacks. Interestingly, Lincoln was soon assassinated."
Because the concept of central banking is inherently unstable as desribed in the quotations above.
Central banking is a form of central planning. There's plenty of examples of central planning's poor performance.
In most places, American included of course, the central bank is privately owned and, by law, has no competitors. It also has no requirement of public audits. It is given the exclusive license to steal big. And it does.
Decentralized planning?
I don't flash political/emotional jargon around because it's MEANINGLESS. The POINT will be that planning in general just ain't going to happen because there won't be sufficient resources to support a future that won't be able to support us; and this FACT has NOTHING to do with any of the political ideologies, it has to do with the purpose ideology that we're here to GROW.
ALL wars are over resources. Increase populations/consumption and have ANY "system" you want and I GUARANTEE that it'll all break down, lead to wars over resources (and the rallying cry will always be about how bad the other side is).
Nothing wrong with drones, carriers, frag bombs, heroin, or land mines. It's just the people allowed to use them.
Nothing wrong with weed and coke, it's just the presidents allowed to use them.
"I wouldn't recommend sex, drugs or insanity for everyone, but they've always worked for me."
Hunter S. Thompson
Disagree.
The FED is an easy copout for the scumbags in CONgress. It alleviates the need for the swine to actually take a decision. Fuck the FED, Fuck Bernanenstein and Fuck CONgress and anyone who votes for these assholes.
"The FED is an easy copout for the scumbags in CONgress."
And for the rest of the collapsing world?
I'm not thinking that you're looking at who funds the campaigns of the "CONgress."
If "pro" is the opposite of "con," then what's the opposite of "progress"?
There's a lot wrong with the Fed aside from the sociopaths who run it.
And "we" are not all to blame for America heading into the abyss. Yes, it's a generalized rise-and-fall arc, and it's not just a matter of what the Federal Reserve has been doing. But blaming the public for not practicing democracy better than we have is nasty. We can't win by playing the game by the rules, only better. "They" have rigged the legal and political system all along, and they continue to fight tooth and nail against real democracy. They always have and always will, until they are deprived of the power to do so.
Real democracy is the only answer. Many people fear the public and the idea of real democracy. But there's no escaping the fact that if such fear motivates your actions or deliberate inaction, then you are embracing the idea that there are some people who know better than others how to run things, and we'd better just give them the power and take whatever they give us. No thanks.
It's the PREMISE! Perpetual growth on a finite planet. TPTB have had to have been laughing that everyone had bought that shit for so long...
Democracy only works up to something like 120 or so, after which it becomes wolves and sheep... And, the "representative" angle, as we can clearly see, tends to condense power that only seems begging for abuse.
Tribes. Love them or hate them, but that's the model that has more mileage throughout human history, it's in the direction of the reversion to the norm. (and tribes can be based on any commonality)
We live in a republic, not a Democracy...
Actually, we live in an empire, not a republic. After Caesar's seizure of the system, the republic was rescinded.
Just the fact that we were told it was a democracy is enough to justify establishing one now.
live(ed)
Fixed it for you.
All you say is quite true. However, your basic assumption that everyone needs/wants a gubmint is flawed. There are many who are very willing to embrace anarchy as a social construct. It was successfully tried (until crushed by Franco's fascists) in Catalonia in 1936. The Basques still tinker around with it as they have for 2200 years.
I might not be an anarchist, but the U.S.A. is way too big. It's an empire right here on its own territory. I'm in favor of far-reaching devolution of power, including the breakup of California into various states.
I think we already have a system in place for that, they're called "counties" XD
Ah, "Chamber of Commerce" counties... Fucking plague, stomp it out: there's an International Chamber of Commerce. This is the puppet breading grounds for TPTB.
No, all this is going to be erased. It must not look anything like what TPTB had reigned over: not only because they DESIRE power, but because it is nothing but an accident waiting to happen (mantra of perpetual growth).
Good start. A little more expansion of the envelope and you may reach Nirvana soon.
Democracy? Did you flunk civics class? Oh, yeah, they don't teach that any more do they?
Fuck the Mumbo Jumbo man
Everyone is to blame, others might get a greater share of blame, but not to blame ourselves is wrong.
We lived beyond our means, no one, and I mean no one has savings, its all debt. Did the FED put a gun to your head to buy 3 tvs, 2 cars, 20 shirts, ect ect ect. on all credit.
Please, most Americans are Fat dumb fucks, whos to blame, the FED.
Wake up.
No, "everyone" is not to blame. I didn't buy any of that crap, and I do have savings, in real money.
Oh come on! If you're living unsustainably then you ARE part of the problem (of failing to to establish an sustainable system/life). I don't mean this to single you out (I'm also not compliant), but to note that yes, we ARE all part of this. It's spilled milk now. Now it's a matter of figuring out how to go forward, and having "savings, in real money" is not sufficient for the future (transition period perhaps, but long-term you're going to have to be a CONTRIBUTOR/PRODUCER [and not of govt military equipment or iCrap]).
If you've collected "interest" then you've "profited" off the perpetual Ponzi (which is totally based on interest, on this perpetual growth mirage).
Speak for yourself deepmoron79.
I'm awake. I don't have a TV, and I don't have a car or a truck. I do have at least 20 shirts.
I am not an admirer of the fat dumb fucks, but they became that way recently through a process that appears to have been designed for this outcome. It has to do with TV and other media, so-called education, so-called food, and meds. It's easy and tempting to blame the fat dumb fucks, but I don't.
Similarly, frugal and debt-averse Americans have been transformed intentionally in recent decades, and herded into their current financial predicament.
To blame the public is to let the perpetrators off the hook and to leave the status quo in place.
IMHO, "the perpetrators" should be more appropriately alluded to as "the continuators." This thing is MUCH deeper ingrained than most believe/understand.
Very glad to hear benefit will be cut by 25% when the fund is exhausted. (I'm 58.)
I'd go further. Think how bankruptcy law works, that all creditors are to be treated fairly, everyone should get a fair share of insufficient assets.
I'd like to see an actuarial calculation fo the health of any pension fund, preferably bsed on a realistic investemtn return equivalent to current 30 year treasury yield but do it at 7 1/2 % if you have to. Identify the percentage of liabilities that are represented by futures postive cash flows (maybe 70% for US private/public funds.
Then pay that percentage of "promised" benefits. To pay more is to defraud future pensioners.
'I'd like to see an actuarial calculation of the health of any pension fund.'
Fair request -- and under the ERISA Act of 1974, beneficiaries of private pensions receive such a calculation annually.
But Social Security -- surprise, surprise! -- is exempt from Erisa. Exempt from its funding requirements, its fiduciary standards, its reporting rules, everything.
Welcome to the second-class sleaze that defines government standards.
"Think how bankruptcy law works, that all creditors are to be treated fairly, everyone should get a fair share of insufficient assets."
The bankruptcy law has been modified somewhat and it wasn't even necessary for Congress to get involved. The GM bondholders and the MF Global creditors can fill you in with some of the details. The MFG details are currently in flux though.
That's how we do it here in the Netherlands (well it's a little more socialist because it's pensions are semi defined benefit plans, reductions in benefits can and already have occurred but there are usually also some increases in contributions ... still, they aren't allowed to pay themselves into a hole, assets are marked to market and are not allowed to fall below 105% of liabilities before actions have to be taken). It's silly to apply such a scheme to social security though ... social security is fundamentally income tax funded pay as you go wellfare. As a citizenship you need to make a decision about what level of wellfare you want to supply and not focus on minutia like the trust fund, which is only there to smooth over temporary funding shortfalls.
The 25% cut is not inherently a good thing ... implementing a future cut in that way is just a method politicians use to not be held politically accountable for the decision. Depending on your views on wellfare it might be a step in the right direction, but it's a step taken in a cynical disingenious way. Cynical disingenious politicians are not people you want to have in power.
Thanks for the info from the Netherlands.
Some friendly editorial help--
"welfare"
"disingenuous"
You are assuming Bernankenstein can read and actually gives a shit about you,me, us, them. Fortunately I plan on being dead before then. It is a shame to miss the show that will be tho.
Let them eat cake? Yeah should be a great show.
Operation "Twist in the Breeze".
Mark as successful !
please copy and paste this article to Fed fraud hotline:
Federal Reserve Consumer Help: ConsumerHelp@federalreserve.gov
I have been saying for years that the fed is destroying the markets by altering all rates. doubtful and most unfortunate that some brave soul will not step up and use this oppurtunity to leverage Barclays et. al. against The Fed.
If Bernanke is planning to wreck Social Security he should stop. He has already achieved his goal. It's not just the rate of interest that is a problem. The bigger problem is that contributions are invested in IOU's at a time when demographics are going backwards, employment is suffering, people are living longer and therefore draining the fund, and the assumption that the IOU's will be paid from future revenues is in trouble due to gargantuan national debts and deficits.
On July 13th decrease your counter party risk and buy silver! You should not rely on any entity, government or otherwise, to keep your wealth safe.
Buy silver!
I have always allocated 5% of my income to the purchase of gold and silver bullion coins since the late 70's, so I am in agreement with your ever repetitive reminders/rants to Buy Silver, but LH you lost me when you started ranting that CNBC and all msm should contact you (?) as the true originator of the "Buy Siver!" idea the other day when some MSM pundit finally got on board with reality. Do you have any input that ZH posters haven't been suggeting for years now? Reminders are good; pathetic uber-repetitive one note ranting and posturing...not so much...sorry.
Lennon, are you acting in the best interests of the public, or are you a tool of the banksters with this shilling for silver?
If not, and you really do have the best interests of everyone at heart, answer me this: Is it wise for those attempting to SAVE to put their money in an expensive industrial metal, that is no longer held by CBs, and unlikely to be re-monetized?
Would it not make more sense to SAVE their money by exchanging it for a precious metal, with no marginal utility, one that CBs hold AND ARE NOW ACCUMULATING, and that is being discussed at the highest levels as a currency "reference point" and/or a means of recapitalizing the system?
To those junking me, I am SHOCKED, SHOCKED, that you do not offer a counter argument... :p
unlikely to be remonetized? ... It was at least considered recently in mexico -
http://www.cobdencentre.org/2011/05/hugo-salinas-price-silver-to-be-mone...