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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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Sorry, Social Security is not indexed to inflation. It is indexed to the federal government's peculiar formula for understating the real rise in cost of living each year. They have been using CPI-W, currently at 229, which has barely doubled since the end of 1987:
http://www.ssa.gov/OACT/STATS/cpiw.html
The nat'l avg gasoline price in 1987 was 95 cents. Oops.
A loaf of bread was 55 cents in 1987. Oops again.
Obama is moving toward indexing SS to "chained CPI" which would understate inflation even more than CPI-W. The SS COLA for 2013 was 1.7%. Chained CPI would have reduced it to 1.4%.
Nyet, tovarich, is all "General Revenue."
Another FUBAR Supreme Court decision in 1940+/-
- Ned
+ 10,000 boomers per day turning 65
So is that number supposed to scare me? What is exactly your point?
Tyler needs to start locking the front door ....the high schoolers are roaming in < 26 weeks 4 days >
Probably a student in Krugs econ class.
Any chance you can get invited to the next Bernank Q&A?
D.C. has a quarantine zone radius of 50 miles for people with actual real-world financial experience, so Bruce would never get in.
Have you not heard of the Fed's ZIIB policy??
(Zero Interest In Bloggers)
I would love to see Bruce in a Q&A with Berstinky. He could replace LIESman and ask real questions and maybe make Benny cry
Good piece. News to me, but I wasn't surprised. The leviathan only gets worse.
Good piece? GOOD PIECE? Are you kidding us? Is Bruce kidding us?
Why does Bruce think any of this is real, or can possibly matter? Look at what he's talking about: In some file cabinets in Parkersburg, WV are a bunch of papers that say "The Treasury will print up enough money to fund your SS check if you live long enough. But these IOU's are not Treasury bonds, they're not worth anything and they're not marketable. There is NO MONEY in the SS Trust Fund, the interest is NOT REAL, it's just bookkeeping entries in a ledger full of worthless paper. It doesn't really matter whether the interest due goes up or down because NONE OF THIS IS REAL. Stop worrying about your retirement; We'll just counterfeit the money, for crying out loud. We don't care whether your SS check buys a case of Alpo or not."
The whole question of what interest rate Treasury is paying on the "SS bonds" is completely pointless. No one's paying any interest to anybody on anything. It's all a huge Ponzi scheme carried on to justify taking 15% of your gross wages every month in "payroll tax" and blowing it on NSA vacations and retirements.
Your rant is not news to a single reader here and your point is?
Great stuff Bruce. Is quantified SS duration and rate risk information found anywhere?
This constitutes investment malpractice, and if any private asset manager operated this way, and left yield exposed or on the table, he would be fired and possibly sued and slapped by regulators.
Yet another example of government ignoring/defying its own standards.
"SSA WILL HAVE TO LIVE WITH THIS DOG FOR 15 YEARS"....That's approximately 105 years in canine terms Bruce. ANYWAY, I'm kinda hangin out waiting for this WHOLE fucking thing to collapse. The spongers, theives, and sheeple will get hungry and someday in the near future will start some sort of pathetic "rioting", only to be squashed by the now Imperial Police & Miltary forces that have been built up over the last few decades, by the NOW controlling 1%er's aka., your government. Always enjoy your take on SS Bruce. As I always tell my distant, still employed ex co-workers, "please keep working and paying that SS tax." :)
Bruce! $1,000 is not enough for anything like what you propose. That's a rounding error in lunch money. It takes much more than that to buy the truth from a politician.