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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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Asia -- particularly China -- would also remonetize silver.
However, I think we have bigger fish to fry ... ahemm, the onrushing globalist SYSTEM ... than rearranging the monetary deckchairs.
My point is, do you want to bet the family farm on one of those countries remonetizing silver?
Silver price is heavily manipulated down (as is gold). Many believe that silver is a better value than gold at the current prices. Gold to silver ratio (GSR) isheavily out of wack.
You said
http://www.nytimes.com/2011/05/30/us/30gold.html?_r=2&pagewanted=all
Already done in Utah.
SSTF should buy gold. That will be allowed to rise after all sovereigns have loaded up.
If they could do it in secret, maybe. News of it would cause a spike in gold like you wouldn't believe.
Lol, must be Mr. Lennon Hendrix junking me, since there's no argument as to why the news of SSTF buying gold wouldn't cause a spike in the price.
Too bad Utah isn't a central bank!
Sorry, you aren't convincing me here...
Do agree that if you are speculating, silver is a better buy ATM.
"Too bad Utah isn't a central bank"
You've made a potentially costly error there. When fiat scrip fails, it is not central banks that will do the re-monetizing of this or that. The choices will be made by the people, as there will no longer be a shred of trust in central banking.
Some will monetize Remington 7mm mag, some will monetize oil or wheat or tortillas, maybe. It's a safe bet that a lot of people will choose to remonetize gold for long-term savings and major transactions, with silver being the most useful candidate for everyday transactions and small savers. The gold-silver ratio was historically around 1:16 for a very good reason; that is the relative dispersion of gold and silver in the earth's crust. Gold is about 16 times rarer than silver--in the ground. Above-ground stocks of gold now represent many times the value of available stocks of silver.
Here's a counter to your offer and a raise: If CBs decide to SAVE themselves by revaluing gold upwards - by simply stating they will buy all gold available at $15,000/oz, and by doing so, they thus shore up their balance sheets. This would leave silver in the dust, as nothing else would get revalued upwards.
First off, who only has Au or Ag exclusively? Secondly, there is about zero chance that Au could get revalued to $15k/oz and leave Ag untouched. A revalue of that magnitude would amount to a devaluation of fiat by the same margin. Most private holders of Au, IMHO, would not run out and trade their entire stack for paper at any price.
Try to keep up.
Central banks announce they are going to buy all gold available at $15k per ounce.
They don't announce they are buying all available oil at $800/bbl.
They don't announce they are buying all available copper at $31/lb
etc., etc., etc.
Why, in your infinite wisdom, oh great one, would the rest of the world suddenly decide all these other commodities are now worth 1000% as much as they used to be, simply because CB's put a massive bid under just one: gold?
Your banks' aggressive purchase plan would essentially reassert gold as the world reserve currency - an act that will devalue fiat by itself - even without additional printing.
How many oil exporters are going to keep the POO pegged to the USD when gold rises 900% overnight?
There is this fantasy that GSR will somehow revert to historical levels, but I am not convinced. Going way way back (egyptians, romans) the GSR wasn't constant. I'm no expert in historical prices, but I suspect that GSR may be drifting, which would imply that GOLD is the better store, not silver.
Too broad, too vague.
next time just shutup or offer specific reasons as to why the ratio should stay 50<.
Here's a specific one: CBs revalue gold upwards by stating they will buy all gold available at $15,000/oz, thus shoring up their balance sheets. This would leave silver in the dust, as nothing else would get revalued upwards.
Here's another: In a SHTF scenario, e.g. Weimar, people abandoned silver for gold because big money couldn't get portable with silver.
And I noticed YOU didn't give a reason why the ratio should go lower (and stay there), so why don't you take your own fuckin' advice.
Hi fella =)
thank you for providing some food for thought, here's why your weimar-cant-lug-around-silver thesis doesn't work;
-Pretty sure I can pull 50 horse drawn carriages of silver bars with a truck, I have two orders of magnitude more horses available to me with less upkeep and more reliability than a wealthy german in 1925. Where did you get this info anyways? It seems like a rather obscure, day-to-day living observation of weimar that very few people would have observed, kind of like you made it up to suit a presumed idea.
-I'm also pretty certain that if there is $15k hot money for every ounce that a bank purchases there is $15k of hot money chasing the next available stores of wealth.
Good work on the ad hominems, it makes your penis much bigger, and I hear it's what sways opinions on facebook =)
Make a convincing case that silver isn't easier to transport in today's world when compared to germany 90 years ago, or that hot gold money wouldn't rush into every other remaining asset (ie, you can't revalue gold, but you can devalue your dollar vs gold and hope it doesn't spread to everything else).
I've analysed your sparks notes: http://fofoa.blogspot.ca/2011/05/costatas-silver-open-forum.html
and yes I've decided that silver is a better store of wealth despite the eloquent FOFOA submission, stooge =)
Western, by your definition - it is impossible to "save" in this environment as everything is "volitile." The beauty of commodities is that they generally have some underlying value as opposed to "paper wealth."
How easy would it be to cross a national border (because under those circumstances, there will be checkpoints) with said truck that can carry 50 carriages equivalent of silver? Dolt.
Safe, least specualtive store of wealth is the key thing here, which is what we are attempting to establish. Dolt.
I only ad hominem after I've made the same point more than once. Dolt.
I am not that person.
And you agree, but you insist on being a dick about it? Well then... Go fuck yourself! :D
"I only ad hominem after I've made the same point more than once. Dolt." yes, thank you for making excuses... are you 16?
In any case, you didn't explain where you got your info about the gold/silver ratio becoming huge because gold was easier to move. Intentional ignorance, or just doltish stupidity? Haven't I seen your ip address before? Silicon valley viral marketing?
I have two thoughts for you
1. both ceased to be monetary metals in the 20th century 2. if gold regains monetary metal status, then because there is enough of it, lying idle, or, better, unconsumed. I know this sounds counterintuitive, but you need enough of it in order to become workable.
A monetary metal, against all expectations, is not a product of a completely "free" market as understood in the last twenty years. It's a product - at least in the phase of monetization - of market makers, i.e. big players pegging their fiat money "exchange rate" or an important national production (like wheat or rice) to the metal. Because a monetary metal must be stable in price, so that everything can be valued against the monetary metal. And for this, there is not enough silver around, the industrial consuption is too great.
Having said that, if gold regains monetary metal status, silver would keep being valuable, or most probably rise in value, but most probably stay volatile. And you don't save in something volatile, you speculate. A small but important difference.
Thanks for saying it better than I could.
Ah thank you ghordius.
So you're a fan of the Euro summit method? Be broad and vague with no real details, what an idiot.
And THAT kids, is how you do irony.
Bought a lot of silver when it was cheap ($5-7/oz), Sadly, since I hauled it everywhere with me, it fell overboard on a fishing trip.
If you show the government agent where it fell overboard, I'm sure he can help you retrieve it so you can patriotically give it to your government so the agent can retire comfortably.
In the event you can't remember where it fell overboard, the kind agent will happily waterboard you until you remember (or die).
SS assumes 4% while most pensions assume 8%, so just who is in trouble here? If a private pension goes bust, politicians can shrug their shoulders (except for auto workers, of course), but the politicians own SS. SS is a pay as you go program. If the bonds don't produce enough income, it will be gathered elsewhere.
Check out www.pbgc.gov
Using the precedent set by SCOTUS recently, Obama will soon issue an executive order taxing all IRAs, 401k plans, etc., at a rate of 30%. Anyone not participating in one will be taxed at 30% of earned income, or $3000 per year, whichever is higher. Waivers will be available upon presidential discretion.
Nah Geeser - they are just going to confiscate all the retirement plans.
http://shankystechblog.blogspot.com/2012/03/afternoon-delight-032812-your.html
Back in 1993 Clinton wanted to take 15% of all IRAs as a tax, so there is a precedent. But to assault some retirements and not others seems unlikely. Look for a VAT tax.
"Back in 1993 Clinton wanted to take 15% of all IRAs as a tax, so there is a precedent. "
That's a new one on me? Got a cite?
The "idea" was first floated by...(drum roll please)...Jesse Jackson, during the Clinton administration.
A quick search reveals the inter-tubes have been swept up pretty well to remove any reference to the notion (on the first couple search pages at least, using different search words) but I remember it as well.
It pissed off alot of people, including me.
The latest incarnation of statists (and their Wall Street cronies) sitting around rubbing their hands together & drooling over something that is not theirs was discussed over at Jessie's in 2010 here...
http://jessescrossroadscafe.blogspot.com/2010/01/us-government-is-eyeing-your-401ks-and.html
The inter-tubes are being swept of all traces of their footprints.
In areas I was researching just a year ago, most references on Wiki are now just 'dead' links when I go back to them. There is also a growing number of misspelled names on Wiki to thwart searching that might then lead elsewhere.
Yes indeed i-dog, being somewhat of a packrat by nature, I started a library when I was fairly young (20's) of off beat archaic stuff figuring (in my concern or "paranoia"?...lol) that those who control information can (to a certain extent) control the reality of what is and was.
I figured the classics wouldn't be hidden as they are too widely known...but the tributaries to those streams of thought would.
Teresa Ghilarducci was the most recent name I was trying to come up with this morning regarding 401k's.
sux
It's coming...also looks like we're getting a national 1.3% excise tax on all real estate transactions in 2014
I'll call bullshit on that one. I can't fathom there being any chance it would stand up under judicial review... I realize Roberts has set the bar fairly low in this regard, as of late (not that it was ever very high), but eventually states are going to start butting heads with fed.gov over the whole jurismydiction thing.
I still haven't seen a cogent response to the issue of Article I Section 7 on this ruling. The bill didn't originate in the house, they accepted the Senate version without reconcilliation in order to fast track it. Makes me wonder if Roberts was actually leaving an easy out to get rid of it. I believe this was why the 'Rats were so insistant it WASN'T a tax back when it was being brought to life.
Actually, I read one on this site, don't know the original author though.
The Senate failed to take up debate on the House bill and instead took up H.R. 3590, a bill regarding housing tax breaks for service members.[158] As the United States Constitution requires all revenue-related bills to originate in the House,[159] the Senate took up this bill since it was first passed by the House as a revenue-related modification to the Internal Revenue Code. The bill was then used as the Senate's vehicle for their health care reform proposal, completely revising the content of the bill.[160]
http://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act
How can you expext to get something from nothing? I mean, real estate has tanked.
"If the bonds don't produce enough income, it will be taken at the point of a gun from elsewhere.
...a little unsolicited help for ya.
It needs to be taken with a gun from elsewhere since the top 10% have been stealing the rest of us blind for the last 30 Years and have bought the government.
It needs to be taken from elsewhere, as the SSTF isn't real anyway and has never been - at best it is a lockbox full of empty promises, at worst it is about as real as a thought experiment.
And "interest paid" to it only adds more empty promises, so not a big deal here.
Instead of paying into a retirement fund, we have really been just paying a head tax that is of no value. Japanese folks are starting to figure out that little "Fun Fact". Catfood for dinner anyone?
There will be no social security payments or pension funds payments in the end. Except from high-end, long established defence and energy companies. That is the writing on the wall. Just the way it is.
Good fight down the comments here http://www.zerohedge.com/contributed/2012-07-04/bernanke-%E2%80%93-my-go... ; )