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Trillions of Paper and a $1,000 Wager
Social Security is sitting on a $2.8Tn portfolio of T Bills and Notes. Take a guess on how much of that was 'turned over' (redeemed/acquired/matured) in June of 2013?
$600 Billion! 22% of the nut went back in forth in a single day. That blows my mind. A pic of the "transactions" that took place:
It gets worse. Each of the transactions results in flurry of printing activity at the the Bureau of Public Debt's offices in Parkersburg, West Virginia. New debt certificates are created; the old ones are stamped "Redeemed". The whole pile of paper is stored in endless filing cabinets. The building where all of this printing takes place:
George Bush went to Parkersburg to visit all that paper in 2005. This pic is GB studying one of the certificates. (Note those high tech locks that keep this paper "safe".)
This printing/storing of paper and all that turnover is insane. The history of this goes back to the 30's when there were no computers, and everything was done in a ledger. But that was 75 years ago. The calculations for the annual re-balancing of the SS portfolio could be done with a computer no bigger than a cell phone. And all that paper shuffling in Parkersburg is just a waste of money.
SS's holdings of all that paper is part of part of the "debt we owe ourselves". Actually it is just debt that is owed, it's no different than the IOUs out to China. There are a total of 230 Trust Funds (SS is the largest), the total of this debt is now $4.8Tn. The other Trust Funds were also redeeming old and creating new paper in June. Total turnover of this paper was in the range of $1Tn for all of the Funds. It must have been a record month down in Parkersville; they were probably drinking Champagne when the month was over.
You would think that somebody in D.C. would look at the way SS keeps its books down in West Virginia. I would defy any of those Pols to look at all of the paper that is created and conclude that it's being done in an efficient and intelligent way. It would take an act of Congress to modernize what is now being done. There is not one chance in a 1,000 that it will happen.
I would love to hear one of those Senators or Congressmen successfully defend the status quo of the Parkersville boondoggle. I would be willing to contribute $1,000 to the campaign coffers of the first Politician who stands up and tries to defend what is going on. I think my $1,000 is safe, no fool would try to defend this, not even a fool from Washington.
SSA "bought" $178 BILLION of bonds due in 2028 at measly 1.75%. This return is going to be less than inflation. The market yield for 15-year Treasury paper is 3%. SSA is underwater on this bond by 1.25%, that comes to a revenue loss of $2.3Bn every year. Blame this result on a 50-year old formula and Bernanke's endless squeeze on interest rates.
The SSA saw some of its best assets mature during June. A total of $94Bn high yielding paper (Average yield = 5.25%) went off the board. It was replaced with 1.75% paper. The loss of income from the redemptions comes to a cool $3.3Bn a year. That is chump change at SSA - but it will happen again next June when another chunk of high coupon paper rolls off the books. If you listened to Bernanke last week, you would have to assume that short rates are pegged at Zero for at least another two years, and good old Ben is not going to let the long end get above 3%. Before the monetary madness ends, most of SSAs decent bonds will be gone.
$400Bn with a current average yield of 5.4% will mature in the next two years, the resulting drop in income will be $14Bn a year. Given that this is a permanent (15 years) impairment of income, the run off in assets is going to add up. A view of the portfolio and what is rolling off:
The pollution of interest income for savers like SS is well understood by Bernanke and his cohorts at the Fed. But they never talk about this 'cost' to the country's future. They just harp on all of the benefits that low interest rates deliver, like renewed housing bubbles in places like Vegas and ever higher stock prices. I estimate that the cost to just SS of the Fed's actions will add up to over $300Bn before the Fed folds its cards and ends QE and ZIRP. $300Bn ain't chump change. I wish it was not just me singing in the wind over the true cost of what the Fed is doing.
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This issue is moot for at least a couple decades:
BAIL-IN
Anyone not asleep at the wheel knows it's coming. The wild-card is The American People, Europeans, Japanese and even the Chinese will succumb to it by various measures. If Americans do, it buys more time, if not, all bets are off.
If new bonds for the trust fund paid 10% it wouldn't change anything. One branch of our government is paying another branch that interest. There are no actual assets in that fund regardless of the coupon rates.
Dear Bruce: I've been saying it since 2009. I see a whole generations living in poverty due to the last two Chairsatans.
Which is why the Obamacare death panels are so essential. Progressives will be able to claim that poverty among the elderly has reached historic lows. Only the strong will survive.
Unless you're one of the politically connected, in which case you'll live well regardless of government programs that screw the common folks.
$300 Billion loss over 15 years?
$300 Billion is less than four months of QE3.
$300 Billion is 7.5 months of Mortgage Backed Securities purchases to benefit banks.
Getting worked up about the people getting paid to shuffle paper in Parkersburg WV is like getting upset about the cost of the tent stakes for the Circus.
Bruce, what's your take on this: "The Biggest Game InTown" about the Government CAFR wealth shell game - YouTube
"For the last 3 years SS has cashed those bonds ..."
This is how the SS Trust Fund Treasury bonds get "cashed".
SS Officer: Mr. Treasury officer I'm here to cash $10 Billion of Treasuries.
Treasury Officer: You have to be fucking kidding me. The Treasury doesn't have any cash. Don't you know that we are running a deficit!
SS Officer: But, but, but you promised.
Treasury Officer: Ok you whining shit head. This is what we'll do: we'll sell $10 Billion of new Treasuries to the TBTF banks which will then sell them to the Federal Reserve and that way we'll get your fucking Dollars.
Moral of the story: Ths SS Trust Fund is a big fucking lie. The trust money has been spent by the Federal Government.
Anyone that believes in the SS Trust Fund is a fucking idiot.
awesome post. also-the chick in that picture w/ W looks like every blonde chick in 80s porn did.
Social security trust funds are nothing more than a well documented scam.
Nothing backs these trst funds other than a printing press.
Problem is those same interest rates are what gets paid on YOUR 401K or savings.... so if you are expecting SS to go bust and are trying to have your own backup plan, you're screwed too. They're trying to get you to invest in the stock market bubble - where you're going to lose half (or more) when THAT bursts again.
There is no SAFE place (in the current financial system) you can put your money to preserve it much less get any growth
if - as you say- there is going to be massive wealth destruction then hiding your FRNs under the mattress will be the best bet because of massive DEFLATION. so returns now don't matter because you will be getting massive discounts on the other side of a crash.
land, metals, and non perishable commodites are the safest in my opinion.
I bet you $1.
yes but ZIRP rates are deflationary, and should the deflation they worry about occur, then your SSN bonds will look pretty sweet. send the disability liabilities back to the states, protect retirement benefits, cut entitlement benefits and the SSN will do its job, and then some. the problem isn't SSN its money to support the military coup in Egypt, if conservatives lived up to their boilerplate this problem would be solved.
Set in cement like a pair "cement shoes". And overboard goes S.S., sunk to the bottom of the ocean in Davey Jones Locker.....
Social Security was bust the moment it was born. Because even the idea of giving such money, power, and control that should have been your own, to a Government, is morally bankrupt from the get-go.
Bingo.
And, as we know, it is a Ponzi scheme, which are dangerous enough to be outlawed in private financial management circles.
Too bad government, which inherently screws everything up as a regular practice, doesn't need that constraint.
No it is not a Ponzi scheme. Social Secutity never was nor ever will be a pension system. From the moment of inception is was taxing current workers to fund current retirees, all in full view. This practice continues to this very day. There is no account with your name on it that collects your SS taxes.
This misinformation produced by hacks like Krasting is why the Oligarchs always win. We are kept barefoot and dumb.
And firedoglake type head-up your ass morons like you are the reason this shit continues.
Guess what tool? Facts are not what you are comfortable with asshat.
Facts exist independently of your bullshit.
SS as currently represented to the general public (the sheeple) is a fraud and a lie.
A fraud and a lie until the day your hypocritical ass starts collecting that money. Again, the Oligarchs love useful idiots.
Wrong. It is a Ponzi in every sense of the word.
It takes from current payers (me) and gives to current recipients (my parents), who receive far more in benefits than they paid in. We're making up the shortfall, and this continues indefinitely.
Even Paul Krugman called it a Ponzi, once upon a time –
http://www.zerohedge.com/news/paul-krugman-social-security-ponzi-scheme-and-will-soon-be-over
Right. just as was intended. You argued against your own false premise.
It was intended to be a Ponzi. Got it.
Ponzi.
Moron much?
'We are kept barefoot and dumb.'
AND pregnant producing ever more serfs.....THAT's the reason so many politicians are anti-abortion.... keeps the dumb and poor breeding
I wonder how this smoking pile compares to the festering piles at all of our favorite insurance conglomerates.
no shit- but yet State Farm is breaking ground on a massive Dallas, Texas campus -WTF?
so previously multiple times on the same SS theme you touted there was no segregated accounts and its all a mirage - now it "is" segregated but manipulated yield to achieve the end game - inability to satisfty claims when all it takes is coordinated yield objectives by independent investment committee and expansion of the limits of contribution and problem is solved for 100 years which doesnt take an MBA to figure out
"most" of the R & D in this country is paid for by the government in some form since 1920 to include the CDC, communications systems and Internet some time ago - royalties are commonly paid for intellectual property in the real world which is not "manipulated" - 1% would satisfy SS without any contributions ....forever!
make up your mind Bruce!
SS isnt an economic problem, its a political problem for.... Peterson and those who want use of the funds = banksters and the MIC
I actually agree with the thrust of your comment. If the trust fund is an accounting device, then the interest it earns, high or low, is also an accounting device. I would ignore the trust fund altogether if the SSA actuaries would put in realistic interest rates in their present projections. They have basically ignored the 1.75% rates all the bonds are running up against now. We are getting a false projection of when the accounting well runs dry.
"We are getting a false projection" yes totally -
when you really get down to it the Citizens of this country "own" the federal government and therefore its resources to include the cash flow as well as the assets
starting with the Lousiana Purchase and extending to the Gadsen Purchase, Alaska Purchase (Stewards Folly), Mexican American war (SWestern US Purchase defacto) and the Spanish American War were all cash flow expenditures of the Federal government full faith and sovern use of funds that assembled most of the country west of the Mississippi
the resources - under and on the ground and in the air (spectrum waves) are "all" government derived
systematically and "with malice" these assets were virtually given away for private gain by politicians paid for the service from 1820's
it would have been easy to grant SS a royalty of 1% on the "use" of these assets as well as the cash flow from R & D (MIC, Communications & Medical) and from monopoly positions granted like to AT & T in the 1920's which would be tens of trillions worldwide sourced (patent treaty) balance today which is the patrimony of the CITIZENS
just four simple examples:
AT&T: semiconductor genesis / fiberoptics / microwave technology /radar / all with governement granted cash from monopoly for sixty years - (1920-1980) - could have been quid pro quo for the monopoly
Minerals: Oil and Gas, Coal - almost exclusively on government land (everything west of Mississippi at one time - mineral rights are commonly seperated from land rights on first sale) and sea rights should have a "market" based royalty (to SS Fund) - example - Afganistan - granted oil and gas rights to Chinese company last year for effective royalty of almost "50%" (royalty and taxes) for exploration rights in a country that has NO infrastructure, laws or safety versus US at less than 12.5% royalty for oil and gas
Banking: franchise of privitzation of money supply granted to banks in the form of the control of the Federal Reserve as worldwide reserve currency and banking system should have at inception - 1914 - a royalty of 1% (to SS for R & P priviledge of the populace)
Radio & TV: should have royalty of 1% (to SS ) plus "free " use of X hours per election to all candidates for use of spectrum to eliminate cash contributions since most of campaign donations goes there in the end and there would be no need for most of the $$
the game has always been rape and pillage of the country "classic R & P action" and propaganda - SS has no problem only recognition of what a citizen deserves for "service" (defined??) either in or out of the military
you could change the dynamic tomorrow all it takes is......... political will!
Sure we're losing money hand over fist but creating and maintaining FED jerbs cost money, right?
It would help a lot if that lazy private sector would dig in a bit harder and get a second job.
Because you work so much harder than teachers, police officers and fire fighters. Seriously. What a dumb ass comment. Even if your billshit premise was correct, those money grubbing government workers would still be paying taxes and buying whatever private product you are creating.
This lack of critical thinking is why we are doomed.
Cute ruse asshat but I'm thinking those on the public dole include (possibly?) more than just the highly militarized police, firefighters, and 'teachers' (of what is another ass whoopin' fer u).
Don't play games.
This isn't your local newspaper or the puffington post.
To PubliusTacitus
Every year SS rebalances its potrfolio to achieve:
1) A new maximum term of 15 years.
2) An exact 7.5 year average life.
3) All maturing debt is rolled over to achieve 1&2.
4) "Interest" is paid in script and added to the pile of paper.
As far as I know, no one is looking at duration or interest risk. Why bother? The rules are set in cement, there are no options available to manage the underlying risks. The folks in Parkersburg already have too much 'work' to do. No sense in adding to the workload.....
Thanks Bruce.
It would be interesting to run a few pro-forma portfolios and see how bad government performance actually is.
The spread between actual & market return is likely staggering, further reducing SS solvency/funding.
Bruce, with the bernak throwing 85 billion a month out the window right now and rates creeping higher anyway, how exactly does Ben "keep the long end from going over 3%"?
a crash will keep rates under 3% and then the revenue steam will dry up. paradox.
we humans are f'n stoopid to have allowed this. the outcome will be radical policy changes possibly starting with nationaliztion of IRA's/brokerage accounts. or one bank setting rates all along the curve.
japan is in domestic stagnation but they 'eat' the incremental inflation. losing a few % each year to inflation is the slow death process thew USA is following currently. problem is, the US hasn't had the stock market crash japan did, so the US tries to keep the pain muted. we had a taste in 2008. crisis will spur policy action.
and just when crisis seems so far away as this insanity is so perpetuated that it appears permenant----boom.
The issue of reduced yields is not just an SS problem: it is affecting individuals and private pensions who must accept very low yields or higher levels of risk. Older folks could be facing the problem of all these funds failing at the same time, and no reliable income from savings. And there would be a ripple effect when folks on fixed incomes cannot pay their property tax, insurance, utility bills, and other routine payments. Someone else will end up paying for those facilities, since much of the costs are fixed not variable.
My view is this a real effect, not just an artifact of Fed policy. Yields really are low, because much of our society's infrastructure is obsolete, and not providing any more Return on Investment. If it is really junk, you can't make much money off it, no matter how high the theoretical book value is.
For example, cell phones have obsoleted most of wireline telephony to individual houses. I talk to young people who say to me: "Landline? What's that?" Wireline trunks are still useful to large businesses, for which the cost is shared among subscribers, but the cost per line is very high to individual homes, including installation and maintenance.
Roads are jammed with automobiles for people commuting to jobs that provide no real service to society, pushing papers around their desks, and spying on each other, as we have seen. These are all costs without benefits, and there are probably many more examples. Your article provides yet another example of useless paper-shuffling.
Takes a gov't to teach bonds a new trick -" roll-over".....
Good Gawd ! ...this must mean ObamaScare will create thousands more filing cabinets and a much, much larger building to house them.
Okay, that was an informative post. Note that this is physical paper. I don't think I want the solution to be digital (completely imaginary) currency that can be gamed by even fewer paper-pushing fucks.
The song remains the same Bruce. The earth has exponentially increasing liabilities, and paper promises. Unfortunately the resources and assets of real value that are available to service all these paper promises are not increasing and may not even be available in some cases. In short, humanity isn't just another ponzi, it's the ponzi. Hedge accordingly.
Short .CEDE & CO bitches.
The rate is moot. None of these will ever be redeemed for cash - the ones that the social security fund holds.
Not so. For the last 3 years SS has cashed those bonds in at an ever increasing rate.
2010=25bn
2011=50bn
2012=75bn
It will top 100bn in 2013. It will go on for as long as the SSTF has this paper on those vaults.
Now, if you asking, "Can this continue?" I would say no. We shall see.
We shall see indeed. The SS liabilities will need to be funded less the starving/riots start.
Any realistic data out there on what SS liabilities will be 2,5 or 10 years out. My feeling is that interest rates on pretty much all government debt can not go any higher. I realize that SS has it's own "revenue" stream, but I seem to remember you posting something about that no doing all that well either. Not sustainable for much longer from my view.
That is the key point. A dedicated revenue stream. Social Security will never go bankrupt and a child born tomorrow will receive SS benefits when she is of benefit age. Now, it is possible that future SS recipients may not get every single dollar that is promised today, but they'll get at least 80 cents of every dollar.
The only way SS will not be there is if we decided we don't want it anymore and then it would take an act of Congress to make that happen.
I apologize in advance if facts get in the way of Krasting and his fellow Oligarchs bogus tripe of unfounded liabilities and their theft of our money.
Are you on drugs?
Nah, probably not. Just a ministry of truth refugee. I actually think most of these poor dolts believe the crap.
You should better apologize in advance for swiftly ignoring the fact that while "a child born tomorrow will receive SS benefits", unfortunately no one knows how much those benefits will buy it then.
My educated guess is "very little."
Social Security is indexed to inflation. In addition payroll taxes are indexed to wage inflation.
"Social Security is indexed to government-calculated inflation."
There, fixed it for ya.