Guest Post: How About Ending Social Security And Paying Retirees With Cash?

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Would printing the cash to fund pensions for low-income retirees trigger inflation? It's more of an open question than we might imagine at first glance.

Correspondent D.L.J. recently suggested an alternative way of looking at Social Security--and our entire scheme of central bank-created money. Let's start by noting that the U.S. Treasury does not create new money (commonly known as printing money) to fund the Federal government's deficit spending--it borrows the money by selling Treasury bonds on the global bond market.

The Federal Reserve has the right to create money out of thin air: it digitally creates money which it uses to buy Treasury bonds, mortgages, etc. The new cash ends up in the hands of whomever sold the Fed the bonds and mortgages--usually primary dealers, Wall Street banks, etc.

The Fed also creates credit out of thin by loaning immense sums or establishing lines of credit for "too big to fail" banks and equally insolvent foreign banks. During the 2008-09 global financial crisis, the Fed extended $16 trillion in credit to global banks. That is roughly equivalent to the entire gross domestic product (GDP) of the U.S.

As millions of Baby Boomers start drawing their Social Security benefits, the system has slipped into deficit. The Social Security Administration (SSA) collected $725 billion in Social Security tax revenues and paid $773 billion for benefits and overhead expenses in 2012, a $48 billion deficit. (Recall that employers and employees each pay 7.65% in payroll taxes on earned income, a total payroll tax of 15.3% of which 12.4% is for Social Security and 2.9% is for Medicare.)

The Treasury raised that $48 billion by selling Treasury bonds that accrue interest, basically forever, as the U.S. is running monumental $1+ trillion deficits every year.

Based on the none-too-pleasant historical results of printing money with abandon, many people are convinced that printing money will trigger a devaluation in the dollar that we experience as inflation, i.e. everything costs more because our money is worth less.

Inflation effectively robs everyone who holds dollars, and it is especially destructive to wage earners, as they are less likely to get raises to keep up with inflation as compared to those with capital and unearned income from stocks, bonds, real estate, oil, etc.

High inflation wipes out savings and destroys the underpinnings of the economy. Venezuela is providing a real-time example of what happens when devaluation of the currency and distortions in the economy triggered by that devaluation take hold: the shelves empty of goods and inflation rises to levels that implode the economy (40% to 50% is usually enough to do the trick).

The Fed has created $2.7 trillion in new money since 2008, yet inflation is tame--less than 2% acording to the Consumer Price Index (CPI). There are several reasons why this money creation has not resulted in the high inflation we would normally expect when $400+ billion of new money is created every year:

1. It isn't enough new money to spark inflation in the vast multi-input U.S. economy.

2. Most of it isn't actually going into the economy, so it has had no inflationary effect.

3. The velocity of money is so low that even a few trillion dollars in new money can't trigger inflation.

There are good reasons to conclude each statement has some validity.

The bloated, debt-dependent status quo is so mired in diminishing returns and state-cartel rentier skimming that a strong case can be made that the system needs a rather substantial quantity of new money and credit to be created every year just to keep the system from imploding.

Here is the monetary base, which just hit $3.5 trillion. Note that this is not the same as cash in circulation, but it does show the Fed is still pedal-to-the-metal in terms of creating money out of thin air.

Here is money velocity, diving to new lows.

D.L.J. suggested an alternative to the current system of taxing workers and employers for Social Security, letting the Fed print trillions of new dollars for its banker buddies and borrowing money to fund Social Security deficits that future generations have to pay interest on forever:

Eliminate the Fed (or at least its right to create money) and Social Security, its bogus Trust Funds, its 12.4% (highly regressive) tax altogether and pay retirees with cash printed by the Treasury, not the Fed. Eliminating the Fed (or at a minimum, its ability to create money out of thin air) means there is no "new money" inflationary pressure other than the money printed to pay pension benefits in lieu of Social Security.

Since nobody is paying Social Security taxes, employees and employers both get a hefty 6% tax reduction.

With the system and its promises of a pension to everyone who paid into the system gone, there is no need to pay retirement benefits to those with substantial income from other sources. The program can revert to providing a pension to those with no other substantial income. Those with incomes above $50,000 (i.e. the top 25%) from all sources, earned and unearned, have no need for a Treasury-funded pension; they're hardly at risk of living in a cardboard box. The current system's skewing to lower-income workers would be maintained, so individuals in the top 40% would receive less than those with no other income.

This would slice a major chunk off the annual pension outlays. Let's guesstimate that total outlays would fall to the $600 billion a year range.

The new pension system would not be universal; it would retain the SSA requirement that only those who worked the requisite number of quarters would qualify for a pension.

Would printing and distributing $600 billion a year trigger high inflation? I think that is an open question for the reasons noted above. Is that enough money to unleash inflation in a $16 trillion economy with numerous deflationary pressures? Distributing the newly created cash to retirees rather the Fed's banker buddies will undoubtedly increase the velocity of money, because the new money will be placed in the hands of people who will spend much or most of it.

The government would reduce its liabilities (the bogus Trust Funds) by roughly $4 trillion, and taxpayers will no longer be paying interest on Social Security deficits.

The effect of printing and distributing $600 billion a year is not as straightforward as we might imagine because the economy has many inputs. Consider what would happen once the Fed could no longer print money and use it to suppress interest rates and funnel the cash to its banker cartel.

The stock market would nosedive, interest rates would rise, crushing the bond market, and real estate's current Fed-induced bubble would burst. Trillions of dollars in assets would disappear in a matter of weeks as the economy renormalizes to a state of free-market discovery of asset prices and the end of the Fed's manipulation.

Such a renormalization would be deflationary, as those losing the trillions of dollars in assets will be significantly poorer.

As part of this thought experiment, we can also ask: since the Fed already "prints" $400+ billion a year, would an additional $200-$250 billion in newly created money be enough to tip the $16 trillion U.S. economy into dangerously high inflation?

I think it is fair to say that the answer is contingent on all the other other moving parts and inputs of the economy. If $10 trillion in assets vanishes as a result of the Fed losing its power to manipulate interest rates and reward the bankers, that deflationary tsunami would very likely overwhelm the injection of $600 billion of Treasury-printed pensions.

Would inflation rise in the future after this renormalization? Possibly. But once again the answer depends not simply on the creation of money but all the other factors mentioned above.

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NOTaREALmerican's picture

Git yer libertarian commy hands off my Social Security you pinko,  I'm ENTITLED to that money.

Why don't you go an cut some REAL welfare like all those young people getting money to go party at college!?!

Looney's picture

What a ClusterCoitus! (please, don’t confuse it with ClusterSCOiTUS or ClusterPOiTUS)  ;-)


max2205's picture

We are fucked when ideas like this are thrown against the wall

r101958's picture

"The Fed has created $2.7 trillion in new money since 2008, yet inflation is tame--less than 2% acording to the Consumer Price Index (CPI). There are several reasons why this money creation has not resulted in the high inflation we would normally expect when $400+ billion of new money is created every year".

How about obfuscation #4: The Gov't supplied CPI does not reflect current real inflation which is actually about 8% annually.

So, when you are getting a 1 or 2% raise or cost of living increase, you are actually losing buying power. When you are getting paid a paltry 0.05% on your savings you are actually losing buying power. It is called financial repression.

BigRedRider's picture

0.05% on savings?  How white of you.  Try 0.01% at any upscale bank for savings accounts.

MontgomeryScott's picture

The 'Bag Man' (whatever he calls 'Not A Real American'), seems to be inciting a duplicitous response on the Zero Hedge website.

You won't be able to serve duplicitous Masters.

Which is more important: Bankster fiat currency debt instrument monies, or True freedom?

Answer by watching this video, and ask yourselves: Do you wish awareness, or Sheep sleep; leading unto perdition and Death?


superflex's picture

How about we take all the Boomers out and shoot em in the head using scary AR assault rifles with 30 round mags.

That will solve the problem this Ponzi scheme has created.


A Gen X'r

Joe Davola's picture

Hey, how about we force all them rich bastards with 401k's to have to give that money to the Treasury and then the treasury can redistribute that.

Oh wait, VPOTUS already looking into that.

rubiconsolutions's picture

"Git yer libertarian commy hands off my Social Security you pinko,  I'm ENTITLED to that money."

Why don't your read the supreme courts two decisions about social security - Helvering v. Davis and Flemming v. Nestor. Then come back and say you are ENTITLED to that money. You certainly feel entitled but legally speaking you aren't entitled.

NOTaREALmerican's picture

Re:  You certainly feel entitled but legally speaking you aren't entitled.

You must be one of them hippies who hates America, and the troops.

Love it or leave it ya goddamn hippy!!!

rubiconsolutions's picture

Yeah, sure. No, in fact I'm 58 years old and a Vietnam vet. Do I hate America? No, but I have nothing but disdain for the American government. I was one of "the troops" but wised up years ago about the military and military-industrial complex. I discouraged my children and any young person I meet from joining by educating them on the facts about what the military stands for. The military has done a brilliant job of marketing itself as unique, special and morally superior to the rest of government when in fact they are identical. There is materially no difference between a soldier and an IRS agent. One is trained to kill and one is trained to steal. Both are morally reprehensible acts. I threw away my medals/ribbons a long time ago and put my honorable discharge and DD-214 through the shredder along with all other documents related to my time in the military. "Love it or leave it", what a bunch of bovine scat. That's the talk of an ignorant nationalist and not an educated patriot. But hey, thanks for your input. 

Dadburnitpa's picture

You must have been... what, 19 or so by April 30, 1975?  The combat troopers left in March '73.  Were you a jarhead?  Some of those guys were still around until Saigon went.  Many advisors were still there too, but they would have been a lot older than you.

PhysicalRealm's picture

Sir -- I understand, but get that DD-214 replaced.  You'll need it when you apply for Social Sec (assuming they still have SS when you're old enough).  Good luck to you.

MontgomeryScott's picture


You fight a losing battle, from within your entrenched basements and deep caves, within the 'MIC'.


How's that 'support' number doin' within the CONUS, you paid schill fuckster?

Tell Netanyahu that WE don't appreciate the shit you pedal, you prick.



HOBO POTHEAD's picture

Let me guess - you must be the "New Normal".

Iam_Silverman's picture

" I'm ENTITLED to that money."

I'm always confused as to why Social Security is considered an entitlement.  Do people pay into the SNAP, Section 8 housing and other F$A "rewards" like I have been doing since turning 16 and having a full-time job?  It is nothing more than a forced retirement savings plan that I did not ask for.  I would be happy if I could just get what I have paid in for all these years back.  Now, I can see where the argument comes in that when I retire I would be getting back more per-month than I paid in.  Good point, but if the same government had NOT debased the currency for all of these years, I think that I would be able to get by with a stipend that matched my average contribution.

fonzannoon's picture

I usually don't get baited into the young vs old bullshit but this statement is ridiculous.

"Distributing the newly created cash to retirees rather the Fed's banker buddies will undoubtedly increase the velocity of money, because the new money will be placed in the hands of people who will spend much or most of it."

We have already started down this path with QE. If you print for the boomers than everyone below the boomers will riot and want their piece. It's not what should happen but I guess it's what may end up happening.

NOTaREALmerican's picture

Re:  It's not what should happen but I guess it's what may end up happening.

Eventually tho, it would relegate SS to just another welfare program.   This would be bad for the future OldFarts (who are, uh, now young and have lots of college loans).

SS only exists now because of the fantasy that's it's not welfare, it's considered by most people as a retirement entitlement.   

Remove the fantasy and you've just got another group of losers on welfare that the mean people would love to throw to the ground and kick in the nuts.

Popo's picture

Eat the old.  They spent their lives fattening up at the expense of future generations.   Let's Soylent Green them and move on.

DollarMenu's picture

How many years do you have until you move into the 'kill zone'?

Can those behind you count on you being liquidated on schedule?

Dr. Sandi's picture


Eat the old.  They spent their lives fattening up at the expense of future generations.

Just don't tell them about the plan until after they've worked their asses off for 40-50 years thinking it somehow matters.

Imminent Crucible's picture

"Distributing the newly created cash to retirees rather the Fed's banker buddies will undoubtedly increase the velocity of money because the old farts will spend it."

Fatal error.  The M2V chart is absolutely useless in gauging money turnover.  Why?  Because the idiot Fed arrives at M2V simply by taking GDP and dividing it by M2 money supply.  Look at the stratospheric growth in M2, and compare it to the pitiful growth in the GDP.  As long as the Fed is adding over $1 trillion to money supply every year just through QE, there is no way that M2 velocity can rise.  At least, not until GDP is growing by much MORE than $1 trillion annually.

The only thing M2V tells us is that the Fed is debasing the currency far faster than the economy is growing.  And since it's pretty much impossible to grow an economy with a currency that's rapidly losing purchasing power,   W E     A R E    S C R E W E D.

CrashisOptimistic's picture

I always sally forth with the uncomfortable truth when Soc Sec is discussed.

It's profoundly racist.  Retirees are mostly white.

Blacks die early.  Period.  It doesn't matter why or if it is unfair.  They do.  Blah blah inferior care in ghettos, blah blah It Doesn't Matter Why.  They die early.

But they (minorities) are increasingly the majority of the workforce and it is extractions from their paychecks funding the white retirees.  They, the minorities, will not collect their own share.  They will die early.  It's a profoundly racist system.


greatbeard's picture

>> Retirees are mostly white.

Odd, from where I'm sitting, I don't see a problem with that.

CrashisOptimistic's picture

What's right about extracting money from black paychecks with a promise that they will collect Soc Sec benefits -- WHEN YOU KNOW THEY WILL NOT -- and using that extracted money to pay for white retirement?

boogerbently's picture

Because it offsets the white paid taxes funding the minority FREE SHIT programs.........for one !

RockRiver's picture

The system is not racist.....


The participants choose their lifestyles and those that die early are not due to the Social Security program.


You have twisted the facts to suit an idea....

CrashisOptimistic's picture

What exactly is the black lifestyle choice that makes them susceptible to hypertension more than whites?

Sean7k's picture

Black on black violence, single mothers, McDonalds, Fried Chicken (and everything else fried), no education and without a doubt, rap music in all its' incarnations. Life expectancy numbers are skewed by black violence amongst males. 

SS is a game of survival. Survival is not racist. 

You want to complain? Go shoot some .001%' ters. They are the master race and everyone else is just trying to support their plantation.

ouchtouch's picture

Their ancestors chose to survive the Middle Passage via hypertension, DUH!

Wyatt Junker's picture

Nothing is "extracted from the paychecks" of blacks and hispanics.  The blacks sell drugs and the browns pull lettuce, neither of which goes through a payroll program.  Its all cash. 

I wish it was as you said though, but it ain't.

MontgomeryScott's picture

@ 'CrashisOptimistic':

Yes, you always 'SALLY FORTH'.

Oh, you WISH you were named 'Sally'.

So, tell me, Sally Forth, which way do you like recieving? I seem to recall a comic strip named 'Sally Forth', back in the late 1960's, that espoused ALL of your views. She used to get it bent over a washer, and in bed, as well, and she LOVED to get all 'risque', as she got fucked over, under, and in between, with multiple lovers.

Tell us, Sally, are white retirees mostly male? Are they heterosexual? Are they intolerant of other worldviews? Does this mean that everyone who retires is a white male heterosexual who is intolerant?

"Retirees are mostly white.", I think I saw you post.

NOW, 'THEY' the MINORITIES' will, I suppose, will 'rise' like cookies from the pan, to ETRADICATE those 'white people' (those that dared to retire, as well as all other whiteys).

YUP. I think this might be an ACTUAL racist comment by you, 'CO'.


CPL's picture

Ummm, SS is broke.  So unless they are handing out a bill to the elderly...nearly ten years of single digit interest.  There is nothing in there.

Bear's picture

Pay cash to retirees, eliminate Social Security Payments ... then devalue ... Priceless

1stepcloser's picture

Myself, I was hoping for the Death Panel of Retires, Elimate FICA Deduction from my paycheck, return 100% of my money invested plan...then walk away  

Debeachesand Jerseyshores's picture

As Judy Garland sang in The Wizard of Oz,"Some where over the Rainbow".


Too elegantly simple to work.

I Write Code's picture

The Bernanke is three years ahead of you.


Ham-bone's picture

Pulled data from ’00, ’08, and ’13 trying to understand the rapid growth in public debt and the slow down of non-marketable debt.  Alongside the Fed and it’s huge increases in QE have been foreigners buying even greater amounts of US T debt at ever lower yields. 

I have no visibility or insight as to who these foreigners are (CB’s?, foreign PD’s?, institutional?, retail?.) or what $'s they are using (currency swaps, QE from US branches of foreign banks, recycling, etc.). 

If the Fed intends to be credible regarding a tapering (market moving) it would seem that the only party left to buy these T’s would be these same foreigners, at ever greater % of outstanding US T debt, and at ever larger loses on their existing T holdings?  If not foreigners, who exactly would be the step-in buyer?

And of the interest to be paid on this debt, given 50% of Notes/Bonds are foreign held, all this interest will exit the US economy not creating velocity or money multipliers...and assuming foreigners are the primary buyer for future T debt @ higher rates, this interest paid will become a greater and greater sucking sound on the economy??? 

Likewise, with the deceleration of the SS "surplus", the growth of non-marketable debt will cease and potentially begin declining neccessitating even more public T issuance to pay for this...putting even greater pressure on someone (foreign someones?) to soak up this issuance?  And ever less remitance from the Fed and intra-gov debt returning to the Treasury resulting in even larger budget deficits???

Seems a few of these questions of Janet would have been in order on how exactly the Fed could taper, much less, normalize to pre-GC Treasury levels???


  • GDP $9.5 T
  • Marketable debt = $3.3 T  (blended interest rate of 6.4%)
  • Non-marketable debt = $2.3 T
    • Fed           2% of Notes/Bonds/TIPS ($50 B)
    • Foreigner 30% of Notes/Bonds/TIPS (890 B)


  • GDP $13.7 T
  • Marketable debt = $5.1 T  (blended interest rate of 5%)
  • Non-marketable debt $4.1 T
    • Fed  4% of Notes/Bonds/TIPS ($200 B)
    • Foreigner  42% of Notes/Bonds/TIPS ($2.2 T)


  • GDP $16 T
  • Marketable debt = $12.2 T  (blended interest rate of 2.3%)
  • Non-marketable debt = $4.9 T
    • Fed           22% of Notes/Bonds/TIPS ($2.2 T)
    • Foreigner  50% of Notes/Bonds/TIPS ($5 T)
maskone909's picture

strange because from what ive been hearing is that forigners have been net sellers as of recent

btw those gdp figures should be held as different variables as they have "changed" the way they calculate it

Ham-bone's picture

I have a hard time looking @ the TIC data but looks to me as if...

From Jan '08 through March '11...there was not a single monthly decline in foreign holdings of Treasury's but so far this year there has been a decline of about -$50 B through August data (Apr/May/June were -$75 B before increases in July/Aug of $50 B). 

This tiny decline so far this year could simply be that w/ QE continuing @ $45 B a month but budget deficits being smaller, there is simply less debt avaialable to foreigners to purchase???  Certainly no signficant selling on $5.1 T base in foreign T holdings (Notes/Bonds).

welcome to read this data yourself and help determine heads / tails...

Agreed, GDP is garbage in / garbage out but it is what it is.

Seer's picture

If my theory that the Fed is intentionally looking to control everything is correct then it would make perfect sense (and correlation).  Better to have someone closer to home ready to forgive your debt than some evil commie country (or such).  I'm taking the Fed "taking it" for the "win."

Ham-bone's picture

Yeah, that's possible but the Fed (@ present) is splitting control of the Treasury market with foreigners and in truth is slightly losing control as foreigners buy ever greater overall % of US T Notes/ Bonds/ TIPS...For the Fed to take control, they will need to simultaneously increase QE while new issuance declines (allowing them to focus on mopping up all rollover debt).

odatruf's picture

Hi Ham-bone, a good set of questions and bit of work laying it out.

In your third graf, you ask who might buy T's if the Fed were to taper. In my view, I think they would lay off the MBS first before they ever pulled back on being the buyer of last resort (increasingly the only buyer, in fact) at Treasury auctions. I've never seen it said that there was any plan to specifically stop buying T's.

Who would sop up the MBS is another question. No one, I would think. At least the way the junk is bundled and sliced now. I don't have any idea how much that would dial back liquidity and credit, but I don't think it would be that much since really the only place it is sloshing around is between the open window, the PDs and the Fed's owners. It isn't making it very far downstream, IMO.  At least I don't see it.

Ham-bone's picture

Hey Oda -

Ben introduced us to the "Taper" meme May 22 - the initial discussion was when the taper would begin.  Then July 19th Ben followed up his previous statements in the press conference that followed the Fed's meeting...While stating that the quantitative easing policy remains in place for now, the Fed Chairman also the policy remains dependant on incoming data. Given the improvement in the U.S. economy, he expects this data-driven approach will prompt him to begin to taper QE before the end of 2013, with the program ending entirely in 2014 (it was never clear if MBS or T purchases would be first or in what amounts monthly decreases were to be).

Absent the $45 B in T purchases or $40 B in MBS, interest rates would move up until buyers of this stuff were properly enticed (aka, what was formerly known as a market)...that could be a lot of movement as present holders of this debt would see the upward move coming and seek to sell before losses in addition to ongoing new issuance...hard to say where rates would equalize???

Seer's picture

I'm thinking that Taper is all about just mixing things up a bit so that folks don't get so complacent and make this entire thing look as ugly as it really is.

Again, I figure the Fed to be buing up shit that no one else will (because it's really WAY overpriced and likely represents stuff that will, as the future unfolds, become less and less meaningful [McMansions when nobody can even manage to maintain them? high-end leased cars to go to jobs that don't exist or can't support their payment?]).  It's quite possible that the Fed will end up looking like the saint (for all) rather than the devil and that it'll swallow all the debt and then toss itself on the funeral pyre- debt jubilee (the system is going down no matter what anyone does).