"The Government Comes Up With the Money"

Tyler Durden's picture




 

Submitted by Adam Taggart of Peak Prosperity blog,

I'm half-heartedly watching the State of the Union address right now. What a cynic I've become.

My younger self would be shocked and saddened to learn how I've come to view these annual addresses as little more than a game of charades. The President (not just Obama, but his predecessors, too) reads a carefully and expensively constructed script designed either to elicit self-congratulatory applause from the echo chamber side of the hall, or to lob political harpoons into the other.

But in the end, it's nothing more than a game of words. And the real issues that desperately need addressing get ignored, glossed over, or showered with pablum and over-promises that will never materialize.

A few minutes ago, the President just announced his new executive order to raise the minimum wage by nearly 40% for those employed by federal contractors.

Now, I'm not going to make this article about the rightness or wrongness of such a move. And I'm very sympathetic to those earning the current minimum wage amount of $7.24/hour. In a world where the basics of living like food, health care, housing, energy, and education have skyrocketed in cost (due in no small part to the intervention of central planners), yet real wages have actually regressed, how the heck does one get by on the minimum wage?

But I will share the thought that enters my mind whenever I hear a politician make such a magnanimous and grandiose claim: How is this going to be paid for?

I think I'm shocking no one when I emphasize that our political leaders act as if money is magically produced whenever the need is great enough. Weak economy? Print money to bring interest rates down. Banks unstable? Print more money to buy their bad assets from them. Can't balance the budget? Run the country at a deficit (as they don't matter anyway, right?).

But I'll share a recent personal experience with the government that still managed to shock me. And I think it captures well the magical thinking at the heart of our national dysfunction.

A relative of mine is in her senior years now without any savings to lean on. (By the way, that puts her in the company of 22% of US seniors over 65. In fact, a shocking 4 out of 5 of all U.S. working households have retirement savings totaling less than one year's worth of income so it looks like there will be many more in her situation soon)

There's no way to sugar-coat her financial condition. She's in a tough situation with limited options. But we're doing what we can to support her.

Which led my ears to perk up when a friend suggested there may be a relatively easy way to boost her monthly Social Security payment. It turns out that, despite being divorced for over 40 years from her former husband, she can claim a portion of his Social Security benefits. If you were married for over 10 years, the government allows this.

Okay, I thought. Good for her. But what about her ex-husband? I doubt he's going to be happy seeing a drop in his Social Security check, and even less happy learning that it's because the government decided to give the difference to someone he divorced four decades ago.

But here's the thing that bowled me over: His doesn't drop.

The government makes it clear that if a divorced spouse is awarded any claim to your Social Security benefits, the benefits you receive remain untouched. From the SSA.gov website:

Note: The amount of benefits your divorced spouse gets has no effect on the amount of benefits you or your current spouse may receive.

As the one investigating this opportunity, I spent a day on the phone with the Social Security Administration, and, sure enough, that's the way it works.

I couldn't help asking the nice folks at the SSA: Who funds this? Where does this extra money come from?

In theory, the Social Security trust fund is a kitty paid into by workers as they earn income during their lifetime. (In practice, we know the kitty is empty, having been raided by politicians for decades). In this case, the ex-husband worked for a certain number of years and had a certain amount of his income directed into Social Security to finance the payments he would later receive in retirement. Payments that he now is, in fact, receiving.

So, if the government later decides that his ex-spouse should also get a check based on his years of employment, but no extra hours were worked to fund that second check, how does that math work?

Well, as probably comes as no surprise, math doesn't factor into the answer I received. "It's just how the system is set up" I was told. "The government comes up with the money."

And that to me succinctly sums up why we deserve the economic predicament we find ourselves in: too many of our leaders and too much of the populace look at the government as a perpetual font of money. The curiosity to ask the questions: Is this sustainable? Is this wise? isn't there. Either because we're too lazy or too fearful to learn the answers.

For the record, I did prod further into how such a payment system could remain solvent. But it was clear to me that, not only was this a strange question to the folks I was asking it of, but it was something they had never even thought about before. It didn't take very long before they conceded that it probably doesn't make sense, but folks who qualify for the extra money would be crazy not to take it.

In the end, my family member did qualify. But not for very much. (There were uncommon exceptions that ended up reducing her claim)

And while I understand why she feels the need to take the money, I'm conflicted about my role in the affair. Because it's this very behavior of treating the government like a free money ATM (or a benevolent uncle with a bottomless wallet use whatever analogy you like) that's ruining us.

Which makes it all the harder to hear of 40% hikes in the minimum wage, or health coverage for all through the "Affordable" Care Act, or extension of the expired unemployment benefits for those who have been out of work for over 99 weeks, without asking: How are we possibly going to afford this?

 

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Thu, 01/30/2014 - 21:56 | 4386308 HurricaneSeason
HurricaneSeason's picture

The Chinese will just have to work harder and the corporations need to be forced to bring their profits back to the U.S. to be taxed.

 

Thu, 01/30/2014 - 21:57 | 4386312 i-dog
i-dog's picture

 

"how is this going to be paid for?"

The same way everything gets paid for ... by somebody else! Duh.

Thu, 01/30/2014 - 22:11 | 4386353 BraveSirRobin
BraveSirRobin's picture

"how is this going to be paid for?"

Oh come on, that's easy. Simply tap the "1" on your key board, then press and hold down the "0" button for as long as you like. Uncle Ben taught us how, and by now, it's certainly nothing new. 

The next part is a little tricky, though. Now you have to arrange it so that all the "1's" and "0's" are directed to Democratic contributors and and corporate cronies. With this, they can buy up on the cheap all the faltering businesses cratering because of the their vastly increase labor and medical costs, and thus consolidate their wealth and power, so they can make even more canpaign contributions and bribes to politicians to make more money and consolidate more power, so they can make more campaign contributons to and bribes to politicians to make more money and consolidate more power, so they can.... oh well, you get the drift.

Thu, 01/30/2014 - 22:14 | 4386375 knukles
knukles's picture

The cute little unicorns will shit 24K rainbow Skittles?

Thu, 01/30/2014 - 22:50 | 4386488 markmotive
markmotive's picture

You're looking at this wrong.

Give the plebs another couple of bucks and they will turn around and spend it on some shit they don't need. You see? Right back into the pockets of the fat cats.

Will more of the same really work? Perhaps we need to overhaul the economic system.

http://www.planbeconomics.com/2013/06/cure-for-capitalism.html

Thu, 01/30/2014 - 23:01 | 4386524 macholatte
macholatte's picture

The minimum wage argument has been around for many decades.  Is there any evidence anywhere that shows it does any good?

Thu, 01/30/2014 - 23:39 | 4386630 dryam
dryam's picture

It doesn't take much to get votes these days considering how ignorant the populace has become.  The more people are cared for & entertained, the less critical thought is required.  After a while critical thinking completely goes away.  Politicians can now piss all over the people and the mainstream thinking is "Who doesn't like a nice warm shower?".

Fri, 01/31/2014 - 00:52 | 4386841 boogerbently
boogerbently's picture

"Farm raised" voters.

Fri, 01/31/2014 - 00:49 | 4386839 boogerbently
boogerbently's picture

Raising the minimum wage is a "too little too late" response to inflation.

Usually there is a net loss.

I'm not sure about a 40% increase, though.

It seems like rewarding bad behavior, to me. 

Mandating higher pay for the underachievers.

BTW, you're not supposed to "be able to live" on minimum wage.

Fri, 01/31/2014 - 04:13 | 4387048 SAT 800
SAT 800's picture

It's always been the result, historically, that this is inflationary. The real 2% inflation that the Fed wants and needs; this is just another angle of attck; QE didn't have enough empact; but raising wages is the start of every inflationary spiral in history. In short, it;ll be done with ctrl+P.

Fri, 01/31/2014 - 10:42 | 4387708 RafterManFMJ
RafterManFMJ's picture

...my role in the affair. Because it's this very behavior of treating the government like a free money ATM (or a benevolent uncle with a bottomless wallet – use whatever analogy you like) that's ruining us.

Lighten up, Francis; this ship is holed and going down. Best loot all the silverware and dinner rolls you can then throw some elbows on the way to the life boat.

Thu, 01/30/2014 - 22:17 | 4386387 Anusocracy
Anusocracy's picture

Nature magically provided for our ancestors for millions of years.

The forager mindset isn't going away soon - not when it's still possible to forage.

Thu, 01/30/2014 - 22:40 | 4386464 Harbanger
Harbanger's picture

Our ancestors also didn't need a foraging permit from DEC.

Fri, 01/31/2014 - 00:21 | 4386761 Unknown User
Unknown User's picture

Uncle Sam doesn’t get to use the magic keyboard though.  Uncle Sam can write magic IOUs for which the Fed types 1’s and 0’s on the magic keyboard.  The only tangible thing in this swop of magic stuff is that the taxpayers have to pay real money for the interest on Sam’s IOU’s.  If only Sam listen to his fathers who told him that he has “power to coin Money, regulate the Value thereof, and of foreign Coin”.

Thu, 01/30/2014 - 22:44 | 4386470 LMAOLORI
LMAOLORI's picture

 

"The same way everything gets paid for ... by somebody else! Duh."


TRUE - the government worker was wrong Social Security does not get any government money NADA dime. The fund doesn't have the power to tax so this money is redistributed from other's in the fund. Means testing is also redistribution.

Thu, 01/30/2014 - 23:09 | 4386544 anonnn
anonnn's picture

The spouse of a wage-earner is entitled to compensation for years of unpaid  labor taking care of children, the household, etc.  which contributed to the wage-earner's capacity to create the income for the family. Note especially, "woman's work".

And to think that women did not have universal right-to-vote in the US until 1920. How moderne! How avant-garde ! The author has some catching-up to do to unshock his faculties. He prolly just forgot. Eh?

Thu, 01/30/2014 - 21:57 | 4386317 Its_the_economy...
Its_the_economy_stupid's picture

and goodbye carried interest deduction, DH.

Thu, 01/30/2014 - 22:12 | 4386360 BraveSirRobin
BraveSirRobin's picture

America rejects tyranny

America votes for tyranny by a landslide

Thu, 01/30/2014 - 22:22 | 4386378 knukles
knukles's picture

The second.
Both knowingly and unknowingly.
But this shit has gotta stop!
Whatever it is.....

 

when's the boxing come on?

 

muff munchers and mexicans 2016

Thu, 01/30/2014 - 22:29 | 4386417 zerozulu
zerozulu's picture

Its easier to print than going through all this trouble.

Thu, 01/30/2014 - 22:46 | 4386483 The Vineyard
The Vineyard's picture

I'm with you.  Ten dollars an hour sounds fair to me.  It ought to be more like 15.  We're a service economy.  We can't go around pretending that the folks still have the same shot of succeeding back when we had manufacturing

Fri, 01/31/2014 - 04:15 | 4387049 Miffed Microbio...
Miffed Microbiologist's picture

It's funny how people propose things like this yet never show the math how it works. But do-gooders certainly have more heart and empathy than mathematicians.

Miffed;-)

Fri, 01/31/2014 - 04:53 | 4387069 HurricaneSeason
HurricaneSeason's picture

My bad, they need to start another trillion dollar war to create good jobs and profits.

Thu, 01/30/2014 - 21:57 | 4386311 Its_the_economy...
Its_the_economy_stupid's picture

How are we possibly going to afford this?

 

You're going to pay for it.

Thu, 01/30/2014 - 22:03 | 4386336 A Nanny Moose
A Nanny Moose's picture

If YOU, means the next several generatioNs, then ya. If you means current retirees, or taxpayeRs. No

Thu, 01/30/2014 - 22:10 | 4386356 Its_the_economy...
Its_the_economy_stupid's picture

YOU means everyone on the grid.

Not where I'm going to be in 5 years.

Fri, 01/31/2014 - 00:31 | 4386793 A Nanny Moose
A Nanny Moose's picture

I'll drink to OTG however, what will that accomplish? You may not have an interest in politics, or government. They both have an interest in you.

Thu, 01/30/2014 - 21:56 | 4386314 kliguy38
kliguy38's picture

Moar War........Moar money

Thu, 01/30/2014 - 21:58 | 4386316 Debeachesand Je...
Debeachesand Jerseyshores's picture

Is your relative receiving two checks from Social Security? One from her own SS and from her ex-husband.

Thu, 01/30/2014 - 21:59 | 4386325 Harbanger
Harbanger's picture

America's petty dictator now rules by executive order.

Thu, 01/30/2014 - 22:06 | 4386328 deflator
deflator's picture

Let the little people get their bogus SSI, EBT, disability, crazy checks and what not. It is a drop in the bucket and if you could take it all away will not stop what is going to happen. Maybe make it happen quicker.

Thu, 01/30/2014 - 22:01 | 4386330 Spungo
Spungo's picture

We should all be thanking the fed. Before money printing, we had to invade shit like Iraq and kill as many as a million civilians to make our rich overlords happy. Now we just debase the dollar. Our masters are satisfied and nobody dies!

Thu, 01/30/2014 - 22:03 | 4386333 Icewater Enema
Icewater Enema's picture

So Adam,  are you saying that one way for a couple to boost their SS income is to get divorced, then have have the (ex) wife claim part of hubby's SS? She gets slightly more and his stays the same. Voila! instant bump up. Nice scam, thanks for the tip. I think I'll go tell my Mom.

BTW, it gets paid for the same way everything has been paid for all these years: FM

Fri, 01/31/2014 - 08:32 | 4387262 akarc
akarc's picture

Better yet, get divorced. Marry another SS receipent. And all move in together.  

Thu, 01/30/2014 - 22:47 | 4386341 HardlyZero
HardlyZero's picture

Dismal.  As this thing spins deeper, continuity of government will be paramount, and funding the UN and IMF to manage the devolution and downgrades of the EMs.    Must be important now.

Thu, 01/30/2014 - 22:10 | 4386351 joego1
joego1's picture

Silly boy! We just print more money of course.

Thu, 01/30/2014 - 22:11 | 4386358 Singelguy
Singelguy's picture

The pledge to increase the minimum to federal workers is all hot air. Most federal employees already earn more than what Obama wants to raise the minimum wage to. So the cost is essentially zero. He is just trying to improve his poll numbers.

Thu, 01/30/2014 - 22:13 | 4386371 BraveSirRobin
BraveSirRobin's picture

It would be interesting to see how many federal employees and contractors make less than $10.10 right now. I bet the number would be less than 100.

Fri, 01/31/2014 - 01:17 | 4386898 Bobportlandor
Bobportlandor's picture

I was looking for the first Intelligent post and you win.

 

But the answer is 0%

 

When I did construction work, Drywall workers made 3x as much working public vs private and I bet this is still the case.

Fri, 01/31/2014 - 01:57 | 4386949 James
James's picture

Davis - Bacon Act dictates those wages on Federal contracts /projects be Union scale. Way above $10.00 p/hr.

Thu, 01/30/2014 - 22:13 | 4386366 gwar5
gwar5's picture

Raising minimum wages blocks entry level workers from being hired and lays off workers in marginal enterprises. It doesn't help.

 

Thu, 01/30/2014 - 22:19 | 4386386 Dr Benway
Dr Benway's picture

Yes, assuming an efficient labour market. And assuming an efficient labour market, Blankfein earns and deserves every cent of his pay.

So I ask you, do you think what we have is an efficient labour market?

Fri, 01/31/2014 - 10:55 | 4387697 PT
PT's picture

No.  Because as the workers get richer, so do the customers.  The minimum wage goes to everyone.  Yes, you lose jobs to foreign countries that don't raise their minimum wage, but unless you're making less than fifty bucks per week, you're losing jobs to them anyway.  On the local level, the percent price increase needed to cover the percent wage increase is less than the wage increase so yes you get inflation, but the percent wage rises more than cover it.  This continues until another variable dominates the equation, for example, when you run out of resources.

Under normal circumstances, the worse thing that can happen after a minimum wage increase is that every one else demands a proportionate increase themselves and drives relative pricing right back to where it was before - bigger numbers on the price stickers but no-one is any better / worse off.

Except for debt.  If wages double then debt is only half the problem that it was before.  A lot of people who would have previously defaulted can now make repayments.  Banks hate minimum wage increases because it inflates away their interest payments so they would retaliate by increasing interest rates.  But if they really want their mortgage bonds and CDOs to be worth something, then they might be open to a minimum wage increase.

But let us get something straight here.  For the last decade and a half that I know of, the banks have been lending more than what people can afford to repay, and then getting bailed out when it all goes belly-up.  Idiots have been bidding prices beyond sustainable levels with unaffordable debt.  Houses have been kept off market in order to keep prices unsustainably high.  You are facing either default, or inflation to bring the debt down to more manageable levels.  But you can have as much inflation as you like, as long as banks can lend exhorbitant amounts of cash to idiots who bid prices too high, the problem ain't going away.  Minimum wage hikes are not the problem.  They are a desperate attempt to combat the problem.  Like trying to fill a bucket with water while some bankster fuckwit is drilling more holes in the bucket.  Stop drilling the holes.  Stop lending huge amounts of money to idiots who can't do maths.  Stop bailing out insolvent banks who insist on lending to idiots.

Thu, 01/30/2014 - 22:14 | 4386369 gwar5
gwar5's picture

Raising minimum wages blocks entry level workers from being hired and lays off workers in marginal enterprises. It doesn't help.

 

Thu, 01/30/2014 - 22:18 | 4386388 noless
noless's picture

Just pay me $20 an hour to act as a liability shield okay? Otherwise it's fucking 50+

Thu, 01/30/2014 - 22:15 | 4386376 noless
noless's picture

Takeaway: marry early and often, claim benefits on all of them.

Thu, 01/30/2014 - 23:15 | 4386497 Pure Evil
Pure Evil's picture

Just remember it has to last 10 years each one.

But, the way it really works is that she can only adjust her SS upward against the one that collects the most SS out of all of them and it has to be more than the amount she collects, not against each one she married.

If they each individually collect less SS than she does then there won't be an upward adjustment. She's collecting the max allowed by law.

So the lesson here is to marry someone that paid into the fund the max amount of payroll taxes that could be paid every year. That's somewhere slightly north of 100k per year and goes up every year.

That way when your spouse dies after working their ass off to make your life comfortable the living spouse can now collect what that deceased spouse would have collected.

Of course this applies to any spouse whether male or female.

Thu, 01/30/2014 - 22:22 | 4386398 eddiebe
eddiebe's picture

They want inflation, they want to get the economy going? Good, pay working people a living wage. Fucking genius!

Thu, 01/30/2014 - 22:23 | 4386405 satoshi911
satoshi911's picture

It will be paid for with FIAT, which can be pulled out of the US governments asshole forever.

*

Why even bother with these rhetorical questions anymore?

WHere will it come from? When will it end?

The end of history is here, and it will end, when they can't play anymore, given that Japan is 20+ years ahead of the USA in STAGFLATION, its probable that it can be played for generations,.e.g. until the OIL is gone, or the planet is so polluted you cannot create 'food'.

 

Thu, 01/30/2014 - 22:28 | 4386415 satoshi911
satoshi911's picture

"FEDERAL CONTRACTORS/EMPLOYEES" are the new PRAETORIANS

Anything else and OBAMA might have a little tea-party on his hands,

I say make everybody who works for the police-state a millionaire, and then send them out to move the lice to CAMP-FEMA.

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