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We're Relying On Phantom Wealth To Fund Our Retirement

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Phantom wealth cannot possibly fund unprecedented retirement and healthcare promises.

The narrative that Social Security, Medicare and pension funds invested in stocks and bonds can fund the retirement of 65 million people is a misleading fantasy. The sad reality is we can't fund the enormous expense of retirement/healthcare for 20% of the populace out of our national earned income, and the savings that have been set aside are either fictitious (the Social Security Trust Fund) or based on phantom wealth created by speculative asset bubbles in stocks, bonds and real estate.

 

I explain the fraud of the Social Security Trust Fund in detail in The Fraud at the Heart of Social Security (January 17, 2011).

 

In the bogus "Trust Fund," the cash has been siphoned off and spent on Federal government outlays. The Fund holds no cash. Instead, it has been given IOUs "backed by the full faith and credit of the United States," the non-marketable securities.
 
Now what happens when the Social Security system redeems $100 billion of those securities? the Treasury goes out and borrows the $100 billion on the global bond market, and taxpayers are on the hook for the debt and the interest on that freshly issued debt.
 
This isn't that difficult to understand, but let's go through it again:
 
In a real Trust Fund, taxpayers pay in their cash, and the surplus cash is invested in marketable bonds--not IOUs, but real assets that pile up in the Trust Fund just like savings in a savings account. That cash is then withdrawn later, as needed, via the sale of bonds purchased with the cash. Taxpayers (employees and employers) pay nothing above and beyond their payroll taxes to fund Social Security.
 
In the fraudulent "Trust Fund," taxpayers' Social Security taxes have been squandered on other Federal expenses, and they have to pay interest on Treasury debt which is borrowed to pay their SSA benefits. In other words, taxpayers pay twice: once via Social Security taxes, a substantial 12.4% of all wages, and then they pay again to borrow cash on the bond market to actually pay the Social Security benefits.
 
Medicare is equally unsustainable: please read these for the full story:
 
Rather than face up to the reality that we face an impossible dilemma--either workers will be slowly impoverished by taxes that must go up to fund unrealistic retirement/healthcare promises, or those promises will have to be drastically scaled back--we have chosen to believe the happy illusion that inflating asset bubbles will painlessly conjure up enough phantom wealth to pay all those promises.
 
How can an unprecedented number of people (65 million Baby Boomers) all retire with unprecedented pension payouts and unprecedented healthcare expenses, and do so without raising taxes? Easy--just inflate asset bubbles that create trillions of dollars in magical wealth.
 
But as I explained in The Happy Story of Boomers Retiring on Their Generational Wealth Is Wrong (June 25, 2014), the assumption that there will be buyers of stocks, bonds and real estate at bubble-level valuations is not based on demographic realities.
 
The phantom wealth of asset bubbles is based on anomalously low interest rates and equally anomalous central bank intervention in capital markets. The base assumption is that these anomalous conditions are not anomalous but the New Normal: central banks can intervene without any negative consequences forever, interest rates can be suppressed to near-zero without any negative consequences forever, and sovereign debt (government deficits) can rise indefinitely without any negative consequences forever.
 
Oh, and corporate profits can also rise indefinitely, too, even as earned income (as a share of gross domestic product--GDP) declines:
To tap this phantom wealth, assets must be sold at bubblicious valuations; this raise the question, Who Will Boomers Sell Their Stocks To? (June 23, 2014)
 
Consider the fundamental relationship of stocks to the nation's gross domestic product (GDP). Current sky-high stock valuations are not just aberrations in terms of previous stock prices--they're aberrations in terms of stocks' valuations compared to the nation's entire economy.
 
So if bonds decline by 50% as interest rates normalize (i.e. rise), and stocks fall 50% as corporate profits and central bank intervention normalize, and real estate declines 50% in most locales as declining wages meet rising interest rates, then what source of funding will replace the $30 trillion in phantom wealth that evaporated?
 
Declining wages? A new speculative asset bubble in bat guano?
 
Perhaps it's time that we face up to the fiscal reality that unprecedented promises can only be paid out of current income and hard assets that can be sold in vast quantities without depressing the price of those assets. As earned income declines as a share of the economy and asset bubbles based on liquidity and financialization pop, we will eventually have to deal with the difficult reality that government debt is not a hard asset that can be sold in vast quantities without depressing the value of that asset.
 

In sum, phantom wealth cannot possibly fund unprecedented retirement and healthcare promises. Only real wealth can do that, and central bank liquidity and the asset bubbles it inflates are not real wealth.

 

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Wed, 08/13/2014 - 10:54 | 5087188 observer007
observer007's picture

A MUST READ

The Russian appeal to Germany

 

"I will conclude this text with a popular quote from the famous American stateswoman Ms. Victoria Nuland, who obviously makes the decisions in Ukraine instead of your Chancellor:

“Fuck the EU”.

Like it or not, but admit that the Americans are a smart people capable of accurately determining the “price” of a united Germany and a united Europe."

http://homment.com/EYe7egShwn

Wed, 08/13/2014 - 10:57 | 5087205 Headbanger
Headbanger's picture

Just increase the alchohol ration for the top 10% to 20 drinks per day

Moar tax revenue plus higher death rate

Problem solved

Wed, 08/13/2014 - 11:07 | 5087257 NotApplicable
NotApplicable's picture

"What will they do?"

Why they'll mint a $30T platinum coin, of course!

Wed, 08/13/2014 - 11:43 | 5087439 max2205
max2205's picture

DUH!

Wed, 08/13/2014 - 12:03 | 5087555 S.M.T.U.Q.I.
S.M.T.U.Q.I.'s picture

Obozoma will keep raising our health care till we can't stand it.  Global warming alarmists just keep talking too loud, too.

Wed, 08/13/2014 - 13:21 | 5087874 greyghost
greyghost's picture

just another scare story. under the power vested to the federal goverment,to print and coin money given to it by the constitution of the U.S. all soc. sec./medicare payments can be made. today the federal goverment doesn't even need to print paper money. simple direct deposit of money created by computor x's and o's for mr. smiths $1500 soc. sec. benefit solves this problem....period. this creation out of thin air of $1500 is nothing more than what the federal reserve does every single day 24/7-365 days a year. this is just one small step to correct major problems. you could say that all goverment soc. sec.  and medicare payments are United States Notes, does it matter if the "notes" are printed paper or simple computor entries...no. to ease the federal deficit you could continue to collect soc. sec. taxes and use just those funds to pay down the national debt. so many articles about these topics just seem to be nothing but BITCH sessions with nothing new brought to the table. is the above the solution? I don't know, maybe someone has a better idea. I will say that i reject any nonsense from clowns who's only solution is to end soc. sec./medicare outright. the pain and suffering that would follow would be a crime, as big a crime as continues today with hft, fed reserve, endless war, grift and graft in every business and elected body. the more and more i see and hear about ending goverment programs from either complete morons or just plain cruel citizens the more the current system will continue. they bring nothing but cruel nonsense to the table. does this article make good points...yes. when does the conversation start about real solutions?  

 p.s. please note that the united states notes would not be a "debt" as is currently the system.

 

 

 

 

 

 

 

 

 

 

 

Wed, 08/13/2014 - 15:22 | 5088543 Mercuryquicksilver
Mercuryquicksilver's picture

Nobody who is serious about "ending" the fed, SS, medicare, war or any government program is calling for an immediate overnight stop. They are calling for these programs to wound down and transitioned.

 

The resulting pain and suffering will be much larger if these programs are allowed to continue unabaited and then crash into a wall. That will be an immediate end without transition. Better to wind down in a controlled manner.

Wed, 08/13/2014 - 12:59 | 5087791 zookeep
zookeep's picture

Phantom wealth is way better than no wealth.

Wed, 08/13/2014 - 11:09 | 5087262 negative rates
negative rates's picture

You can sell them to the Fed, the Fed will buy anything from Mr. Bondy.

Wed, 08/13/2014 - 11:54 | 5087500 MalteseFalcon
MalteseFalcon's picture

People tie themselves up in knots trying to convince themselves that the Social Security debt isn't real and can be wished away.  I'll keep it simple:

1.  The state set up the system.  It was a political decision.

2.  The state has any number of means of coercing compliance from recalcitrant citizens.

3.  Old people organize, vote and support the state like no ones business.  The progeny of these people want the oldsters taken care of, lest they get stuck with the whole job.

4.  It doesn't matter if the trust fund is held in the form of bonds, IOUs, skittles or armor piercing bullets.  These are just devices for enumerating the debt.

5.  As long as the state exists they will be gathering funds from you and cutting checks to a very favored minority.

Note that the Soviet Union had to disappear for these debts to be extinguished.  Is the Anglo-American empire going to completely disappear anytime soon?

Wed, 08/13/2014 - 12:42 | 5087757 seek
seek's picture

Is the Anglo-American empire going to completely disappear anytime soon?

Yes.

Wed, 08/13/2014 - 13:07 | 5087847 MalteseFalcon
MalteseFalcon's picture

Not completely.  Hint: nuclear weapons.

Wed, 08/13/2014 - 14:03 | 5088119 KnuckleDragger-X
KnuckleDragger-X's picture

It's not going to disappear, it's going to melt down to a nub like a candle.

Wed, 08/13/2014 - 11:14 | 5087288 Robinhood
Robinhood's picture

Famous?  I'd say infamous zionist cunt!

Wed, 08/13/2014 - 15:18 | 5088520 prmths2
prmths2's picture

"...the German chancellor, whom they for all these years have kept under surveillance like some sticky-fingered housemaid..."

was a bonus.

Wed, 08/13/2014 - 10:59 | 5087218 firstdivision
firstdivision's picture

We're also rallying due to someone selling the shit out of short-term vol.

Wed, 08/13/2014 - 11:03 | 5087228 JustObserving
JustObserving's picture

Good news is we only need $244 trillion per Kotlikoff.

http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-...

Wed, 08/13/2014 - 11:03 | 5087235 SheepDog-One
SheepDog-One's picture

And if geezers are thinking they can depend on me to be funding their golden plated retirement years, they better think again.

Wed, 08/13/2014 - 11:41 | 5087428 Talleyrand
Talleyrand's picture

Got it, Dog. Thanks for the warning. I will no longer count on you to fund my retirement.

Can I still count on you for a dozen or so inane, facile ZH posts per day?

Wed, 08/13/2014 - 12:46 | 5087772 SheepDog-One
SheepDog-One's picture

Well, you can definitely count. on going and fucking right off

Wed, 08/13/2014 - 15:19 | 5088535 Talleyrand
Talleyrand's picture

That makes no sense at all.

Wed, 08/13/2014 - 16:17 | 5088858 SheepDog-One
SheepDog-One's picture

Go cry elsewhere, geezer.

Wed, 08/13/2014 - 11:55 | 5087512 MalteseFalcon
MalteseFalcon's picture

Just curious.  What is your plan for avoiding the coercive power of the state?

Wed, 08/13/2014 - 12:55 | 5087800 GubbermintWorker
GubbermintWorker's picture

Actually, my retirement, which begins in four months, will be funded by solid gold and silver, no gold plated crap for me ;)

Wed, 08/13/2014 - 13:34 | 5087950 greyghost
greyghost's picture

oh yea sheepdog...same old tired shit of death and destruction. can we at least count on you to help bury the bodies before the stench and germs spread like a plague to your door. your asshole attitude keeps us exactly where we are. you bring death with every word and that scares the living shit out of normal people. why your such an ass you can't even provide a solution for all the bodies your idea will create. what a disgusting human.

Wed, 08/13/2014 - 15:23 | 5088550 PrecipiceWatching
PrecipiceWatching's picture

I'm certainly not a geezer, but I'm not a monotonically negative, cynically kewl,  snot nose, know nothing either.

If given a choice, I would ONLY want back  precisely the SUBSTANTIAL amount that I have personally paid IN over a long working career.

 

Wed, 08/13/2014 - 16:00 | 5088750 syntaxterror
syntaxterror's picture

Nobody is funding anything. The concept of a "taxpayer" is antiquated now that spending is debt or money printing.

Wed, 08/13/2014 - 11:07 | 5087250 youngman
youngman's picture

So far my real wealth is selling for only $1300 and ounce....it should be $5,000 by now...I think......APPL is going to $2,000,000 a share...go figure...

Wed, 08/13/2014 - 13:23 | 5087910 J Pancreas
J Pancreas's picture

Honest question: how easy is it (could it be) to sell phyzz in Colombia? Would you need to go to a main branch in the capitol or are there coin shops like here in the states?

Wed, 08/13/2014 - 11:07 | 5087251 Its_the_economy...
Its_the_economy_stupid's picture

Who Will Boomers Sell Their Stocks To? (June 23, 2014)

Answer: Chinee and Eurofleeing mainlanders

Wed, 08/13/2014 - 11:56 | 5087521 MalteseFalcon
MalteseFalcon's picture

The FED.  Then thru a weakened dollar, you ultimately pay.

Wed, 08/13/2014 - 12:59 | 5087820 Steaming_Wookie_Doo
Steaming_Wookie_Doo's picture

Yup, ya beat me to it.

As for the healthcare, it's going to ratchet down to slower service, denied claims, asset forfeiture for care. Slowly boil those frogs. And yes, the progeny wants nothing to do with caring for old folks. The real fairy tale was thinking one could live for 20 yrs not working and all their (increasing healthcare) expenses handled.

Wed, 08/13/2014 - 15:30 | 5088602 Totentänzerlied
Totentänzerlied's picture

Yes and no. The geriatric healthcare costs of, say, the average Iranian or Vietnamese person are a fraction of those of the average westerner (socialized healthcare or not, it makes almost no difference in the final accounting). If geriatric healthcare costs were not completely untouched by market forces/reality, we'd have no problem paying them. But when Americans (and others) not infrequently spend more on (purchasing-power adjusted) healthcare expenses in the final ~5 years of life than the rest of humankind spend on same in their entire lives, no, that won't work for very long. Worse still, it has become normalized, so many of those in the 50-70 age cohort today have come to expect having that kind of utterly absurd healthcare expenditure during their final years. $400,000 can delay your passing by, oh, perhaps 1 whole miserable year.

All of this is a result of excess credit and the most important privilege it confers - the privilege of never having to make tough adult decisions about one's priorities. Remember when parents left inheritances? How passé!

Wed, 08/13/2014 - 11:07 | 5087258 Eyeroller
Eyeroller's picture

This article is preaching to the choir, here on ZH.

Try making these observations on CNBC or Bloomberg or Marketwatch and you'll get plenty of abuse hurled your way a la Santelli.

 

Wed, 08/13/2014 - 13:20 | 5087891 Omen IV
Omen IV's picture

This article is a pete peterson paid for promotion - nothing more

 "workers will be slowly impoverished by taxes that must go up to fund unrealistic retirement/healthcare promises" ...nonsense 

you admitted SS reserve funds were spent on government expenditures - Military since 1950 spent over $17 Billion -equals the debt -  workers are paying for that cost - not SS which has been paid for

put a war tax on the books to pay retroactively the military wasted dollars - problem solved  and a  SPECIAL WEALTH tax on the benefactors of WAR

So we now have repeat of endless speeches and phony articles -with  Fix the Debt mime of 2011-12 - with the election coming up this is all propaganda  - get Krasting to play the drum as well

 

Wed, 08/13/2014 - 13:36 | 5087967 greyghost
greyghost's picture

omen IV, thank you for at least bringing something to the table.

Thu, 08/14/2014 - 02:39 | 5091037 malek
malek's picture

 "workers will be slowly impoverished by taxes that must go up [...]" ...nonsense

It is nonsense, but only because the workers have already been impoverished by under-reported inflation for 2 decades, and it will continue even worse.

$17 Billion -equals the debt

How lucky are we, Apple can bail us out from their cash reserves!
For the real world, tell us where to take in $17 trillion in additional taxes, wise-crack.

Wed, 08/13/2014 - 11:18 | 5087306 SofaPapa
SofaPapa's picture

Retirement?

Try everything.

Many years ago, before I understood what I do now, I set up a college fund for my kids.  I now view that as burned money.  The assumptions behind the "growth" that fund will need to see to cover college costs are the same BS that CHS is describing here.

As many here have noted, there are no more markets.  As such, any "investment" is null and void at this point.  We are entering (have entered?) the realm of "if you don't hold it (tangible), you don't own it."  At some point, faith evaporates, and all the trading people do to make our society look the way it does shuts down.

My timing has been horrific; I had zero idea they could keep it going this long.  But I remain convinced in the final outcome.  It's coming.

Wed, 08/13/2014 - 11:46 | 5087463 FredFlintstone
FredFlintstone's picture

Putting my 4th through college now. I saw the fraud in the 529Cs right off the bat. Just another program to keep you captive and to siphon off money. Every state that has a program has an office and government employees to look after it don't they? Some government hack that campaigns for the governor and so forth. Kid wants to go to college out of state, then what?

Wed, 08/13/2014 - 11:48 | 5087471 optimator
optimator's picture

Worse yet, when you go for scholarships and they see a college fund they'll laugh at you.

Wed, 08/13/2014 - 13:44 | 5088005 p00k1e
p00k1e's picture

Same.

I closed my 401K and bought a house.  A paid off house in ‘retirement’ is a better ‘thing’ to own than a screen shot of a 401K. 

If Government cancels property rights and tries to bail me in, I can at least burn the house for satisfaction. 

The 401K, they’ll just give me a redemption slip that’s payable in 100 years after they bail those in.

Wed, 08/13/2014 - 11:24 | 5087329 Grande Tetons
Grande Tetons's picture

Sofapapa,

My timing has been horrific; I had zero idea they could keep it going this long.

Member of the same club. 

FWIW...I got rid of the education plan for my kid as well. Full scholarship or he works with Dad. 

Wed, 08/13/2014 - 11:25 | 5087342 q99x2
q99x2's picture

Don't worry about it. The NWO prints it all up over in Brussels.

Wed, 08/13/2014 - 11:31 | 5087377 youngman
youngman's picture

SofaPapa..I am with you too...Had no idea they would take it this far and for so long.....I thought there might be some justice done....by that I mean failures....but the Central banks are just not going to allow that....they have taken the risk out of the markets....I am begining to think if the markets drop 20%...the Central banks will come in and save them....because so much wealth is in this fake market highs....but I also believe the fake wealth has to turn into inflation at some point....

Wed, 08/13/2014 - 11:32 | 5087382 orangegeek
orangegeek's picture

gubbamants are already using tax dollars to keep pensions rolling

 

so for those in the private sector, you should know that the gubbamant is taking the taxes you pay so some fucking gubbamant slob can retire at 55 on 60% of the highest earning year

 

ready to shoot Barry yet anyone?

Wed, 08/13/2014 - 13:07 | 5087848 GubbermintWorker
GubbermintWorker's picture

Ya know, this is getting old. Not every gubbermint job is unionized. Mine isn't.  I don't get 60% of my highest earning year nor do I get any healthcare after retirement. While I do get a defined benefit pension, its 30% of the highest five year average of my salary. And its a salary, no overtime figured into it. Yeah, I realize its a lot more than most get who have 401k's, it ain't gold plated. And I had to wait until 60, not 55. Now you must also remember that when I took this job 37 years ago it was with the understanding that pension plan was part of the pay. It may not be there for very long and I understand that and have made provisional plans including no debt and a good quantity of metals including gold, silver, and lead. And lead delivery systems ;)

Wed, 08/13/2014 - 11:32 | 5087388 useless_fact
useless_fact's picture

Bee stings are acidic while wasp stings are alkaline.

Wed, 08/13/2014 - 13:11 | 5087855 GubbermintWorker
GubbermintWorker's picture

Yabut, neutralising a sting with either vinegar or bicarbonate of soda is unlikely to be effective or even practically possible because:

1) The venom from wasps and bees is injected under the skin and after a few minutes spreads deep into the tissues. Sloshing unknown strength vinegar or bicarbonate of soda onto the skin surface is unlikely to even get near the venom so no “neutralisation” is likely to take place anyway.

2) A wasp or bee sting is between 5 and 50 micrograms of fluid – this is a tiny amount of fluid – a little pinhead or the size of this full stop . – and it is hard to believe how pouring comparatively huge volumes of unknown strength vinegar or rubbing lumps of bicarbonate of soda near the venom of unknown pH is going to produce a perfectly neutral pH which neutralises the sting and stops it hurting.

So, I confidently state that vinegar and bicarbonate of soda (or at least their acidity or alkalinity) have no real physical effect on how much a sting hurts or continues hurting.

Wed, 08/13/2014 - 14:09 | 5088141 greyghost
greyghost's picture

bee stings.......make thick mud from back yard and spread on stung area. while mud dries it draws venom out. did this two years ago...really works. did two mud packs and sting and pain gone

Wed, 08/13/2014 - 11:38 | 5087416 Fix It Again Timmy
Fix It Again Timmy's picture

TV ad for retirement - "Traveling the world, having a wonderful time, great cruises, etc."  Reality - "Staking out a park bench, it's not much, but it's home...".  During my younger days, my best "vacations" were waking up in a new apartment during the weekends...I have no desire to see the world, now - a pleasant outdoor cafe, a beautiful day, good companionship and a delicious meal is like being in heaven without ever having to hop on a plane, ship, etc..

Wed, 08/13/2014 - 11:46 | 5087458 optimator
optimator's picture

No raises in retirement, unless you're a government retiree, great for the company but impoverishes the Little Guy.  Good thing inflation is under control.  (Sarc)

Wed, 08/13/2014 - 11:44 | 5087447 gatorboat
gatorboat's picture

Pension funds are one reason TPTB are keeping stocks and bonds inflated.  Make pension funds look solvent.  Just like it makes banks look solvent.

To prevent another financial collapse Fed will print dollars and buy up the entire bond and stock market if necessary.  So no worries about pension funds going bust, just like no worries about banks going bust.

Just the dollar will bust.  Pensions will be paid out but the dollars won't buy anything much.  Just like social security will be paid out but the dollars won't buy anything much.

Everybody (including ZH) is fixated on stocks and bonds.  It's a distraction to keep people's attention away from where the collapse will occur, the US dollar.

"We'll just kill the dollar."

 

Wed, 08/13/2014 - 11:59 | 5087539 MalteseFalcon
MalteseFalcon's picture

The dollar that old people get from the government will buy just as much as the dollar in your paycheck.

Wed, 08/13/2014 - 14:10 | 5087632 gatorboat
gatorboat's picture

You're right.

Dollars in your paycheck won't buy much of anything either :)

A time is coming when you'll need a 30% raise each year just to keep the same purchasing power.

Then 40% raise.

Then 50% raise.

Then 60% raise.

Then 70% raise.

Then 80% raise.

Then 90% raise.

Then 100% raise.

Then it goes exponential, 200% raise, then 400% raise, etc.

What?  You don't get any raises?

Ha ha, then you're fucked !!

Wed, 08/13/2014 - 14:27 | 5088239 gtb
gtb's picture

Once it starts, it won't take years to reach its unavoidable conclusion.

Wed, 08/13/2014 - 11:44 | 5087450 novictim
novictim's picture

"Shhhhhh....you're NOT supposed to tell anyone about the pon..." said Janet Yellen, cutting off the last word with a symbolic karate chop.

The new members of the Senate Finance Committee looked at their feet or at the paintings on the walls, or just about anywhere but at each other.  No one could bring themselves to look anyone else in the eyes after what they had heard. 

That is, no one except Sen Jay Rockefeller and Sen. Orin Hatch who made a point of raising their glasses of champagne to each other in typical alpha male fashion.

Wed, 08/13/2014 - 11:52 | 5087495 metaStable
metaStable's picture

"In a real Trust Fund, taxpayers pay in their cash, and the surplus cash is invested in marketable bonds--not IOUs, but real assets that pile up in the Trust Fund just like savings in a savings account. That cash is then withdrawn later, as needed, via the sale of bonds purchased with the cash. Taxpayers (employees and employers) pay nothing above and beyond their payroll taxes to fund Social Security."

It is mathematically impossible to have a "real" trust fund over a long enough duration. None of the drivers for a linear increase in trust value fund exist or have ever existed for a realistically long enough time duration.

Wed, 08/13/2014 - 12:04 | 5087561 QQQBall
QQQBall's picture

Bonds are IOUs - pay attention

Wed, 08/13/2014 - 11:56 | 5087513 wiesenda
wiesenda's picture

I fully agree that only hard and productive investments have any hope of funding retirement when the workforce shrinks. But they will have to be hard assets that will still be "hard" i.e. in demand in such an environment, or will have to be investments that are still productive in such an environment. The question for the latter is not whether they are done by public or private entities but whether they will be productive in the future - think of investing in the infrastructure in population centers (older populations migrate to centers), investment that increases output in tradables (such as automation and related technologies) and foreign investment in countries that lag in the ageing process.

I do not agree that the Social Security Trust Fund is a fraud necessarily even though those securities are deemed non-tradable. I suppose that the Treasury is paying interest on that debt and will continue to do so when the fund is redeemed and new, marketable securities have to be issued by the Treasury to get a hold on the necessary cash. If one is of the opinion that interest rates are manipulated down, the workers paying into the Fund are being expropriated but this would not be different if the fund held marketable securities.

Wed, 08/13/2014 - 11:58 | 5087532 spinone
spinone's picture

The banks and corporations have your retirement money, do you think they will let you have it back? They have it and they like it and they own the govt so they'll keep it. Your mistake was giving it to them in the first place.

Wed, 08/13/2014 - 12:10 | 5087589 oudinot
oudinot's picture

Excellent article.

Perhaps QE would have worked better if the CB bought along with MBS, TB the special bonds the SS own.  It would go from locked up to locked up,.............

Wed, 08/13/2014 - 12:09 | 5087593 QQQBall
QQQBall's picture

Taking my "retirement" early and often. Son is off to Barcelona, I will grab a trip. We'll start back up in a month. I like what I do, which is rare these days.

Wed, 08/13/2014 - 12:25 | 5087671 MrPalladium
MrPalladium's picture

Yet another essay on how to save the system by starving the old folks. What about the vastly expensive system of welfare for those of working age?

Oh, and aren't the boomers' children then saddled with the new oblibation of directly supporting their parents, while continuing the obligation to support the working aged on welfare, and to save for their own retirement?

SS old age benefits and medicare are part of a system. You cannot cancel them without profound collateral damage to other parts of the system. Aging boomers are not aliens from outer space who can be eliminated without consequence to the younger cohorts of the American population.

Wed, 08/13/2014 - 12:30 | 5087701 spinone
spinone's picture

They voted themselves unprecedented benefits at the expense of future generations, selfishly serving their one interests against those with no voice or yet to be born.. Now that those future generations can vote too, don't expect those same future generations to vote against their own self interest.

Wed, 08/13/2014 - 12:51 | 5087753 MrPalladium
MrPalladium's picture

Wrong!!

Our representatives in Congress kept increasing the benefits (especially on the Medicare side) in order to buy votes at each election. At the time these benefits were voted in, the boomers were young working people and probably opposed the increases (I consistently opposed the increases but nobody in Congress cared about what I, or the vast majority of boomers at the time, thought!!). Back 30 years ago, all of my boomer friends knew perfectly well that the SS and Medicare systems would collapse at some point, and that we were at risk of not getting the benefits, but the politicians didn't care what we thought!!

And the vote buying at the initiative of politicians continues until the system slams into the wall.

Wed, 08/13/2014 - 12:32 | 5087719 MalteseFalcon
MalteseFalcon's picture

To cancel SS would obliterate the credibility of the government.  For SS to disappear, the government must disappear.  How likely is that?

Wed, 08/13/2014 - 13:35 | 5087963 Apply Force
Apply Force's picture

How "likely" I dunno, but it is something to pray on!

Wed, 08/13/2014 - 12:29 | 5087690 TrustWho
TrustWho's picture

ZH should play a game.

Describe the unwinding process, time-line and event that happens once the curtain has been pulled back to reveal the powerless central bankers playing OZ. When people lose faith, what happens?

This really started in the 80's when Japan was willing to sell USA autos and electronics for USA treasuries. The USA dollar should have collapsed such that USA purchasing power collapses imports, USA citizens start making stuff to export and capitalism would have brought balance. After decades of globalization and central banks' economic managment behind the facade of capitalism, the unwinding process will take your breath away.

Wed, 08/13/2014 - 13:20 | 5087897 PresidentCamacho
PresidentCamacho's picture

I say we ship all our boomers to middle east and africa, it would be perfect match.

Wed, 08/13/2014 - 13:37 | 5087971 GubbermintWorker
GubbermintWorker's picture

I say we kick you out of your mom's basement and tell you to support your own damn self.

Wed, 08/13/2014 - 15:40 | 5088450 Clesthenes
Clesthenes's picture

“taxpayers pay twice: once via Social Security taxes... and on” the debt borrowed by the US Treasury to keep SSA “solvent”.

Ah, you overlooked something: taxpayers pay a third time to finance exorbitant salaries and pension checks for public (city, county, state and federal) employees.  Their retirement system is completely financed by taxpayers.  It follows almost exactly the SS model: half is paid by the employee and half by the employer (that is, taxpayer); thus, both sides are paid by taxpayers.  In some cases, the public employee pays nothing.  It’s the amount that stuns: grunt bureaucrats can retire with monthly pension checks ranging from $3,000 to $6,000; department heads, monthly checks of $15,000 to $25,000.  On the private side, SSA recipients are lucky to get $1,500 per month.  See my articles, ‘Who Owns City Hall?’ and ‘Of Lords and Cattle”.

This disparity and the missing SSA funds are some of the problems that loom over our future.  Of those who suggest solutions, they all suggest impossible band-aids: raise taxes, cut government expenses, or reduce retirement amounts; none of which are practically or constitutionally possible (this link is one of several where I deal with the topic).

They never even consider the only just solution: an investigation into the missing $9-$10 trillions that went missing from DoD, HUD and SSA, among others; and then the collection of such funds.  Of course, nothing will happen if we rely on existing forums of redress (legislatures, courts, media).  If we are to have redress, we will have to duplicate what American Founders did, minus their mistakes.

  (Follow my other comments: click my name, thanks.)

Wed, 08/13/2014 - 18:25 | 5089487 observiate
observiate's picture

the centrally planned statis keynesian experiment will end badly.

will we be able to educate enough people on the beauties of Austrian School free market economics in time for a renaissance to occur?

Or will we continue sinking toward a neo-Dark Ages?

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