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Daily Digest 8/13 - Black Gold On The Black Market, Drought On The Forecast

Monday, August 13, 2012, 10:01 AM

Economy

Sentinel ruling may hurt MF Global clients (Thomas C.)

"I don't think that's what the Commodity Futures Trading Commission had in mind" with its requirement that brokers keep customer money separate from their own, he said.

Social Security surplus dwarfed by future deficit (Jeff)

Lawmakers from both political parties say they want to avoid such a dramatic benefit cut for people who have retired and might not have the means to make up the lost income. Still, that scenario is more than two decades away, which is why many in Congress are willing to put off changes.

Georgia Town Ranks As City With Worst U.S. Job Loss (Martin F.)

The presidential candidates continue to wrangle over how to fix the economy and create more jobs, but Pennington says they're not doing anything to help cities like his.

"Nobody seems to want to address that. They'll mention jobs but then they go about bashing the other person," he says. "We would love to have other manufacturers here. We would love to have any kind of high-tech business here. But it's not as easy as people think it is to be able to attract that. If it is, Atlanta would like to have it, too."

Majority of Israelis oppose strike on Iran (Martin F.)

The poll also showed that Israeli support for Netanyahu has waned in the past three months. According to the poll, only 34% expressed satisfaction with the prime minister, as opposed to 58% who said that they are dissatisfied. The remainder had no opinion. A similar survey conducted in May found that 46% were satisfied with the prime minister’s performance.

Israelis protest against possible military strike on Iran (Martin F.)

Washington and Tel Aviv have repeatedly threatened Tehran with a military strike to force it to halt its nuclear energy program, claimed by the duo to have been directed towards the acquisition of military nuclear capability.

Five years on, the Great Recession is turning into a life sentence (ScubaRoo)

Some date the crisis to August 9 2007, the day it became clear that Europe’s banks were up to their necks in US housing debt. The ECB flooded markets with €95bn of liquidity. It seemed a lot of money then. The term “trillion” was still banned by the Telegraph style book in those innocent days. We have since learned to swing with the modern dance music from central banks.

Energy

Want The Highest Crude Oil Price? Presenting The OPEC Cost Curve (safewrite)

With the presidential elections fast approaching . . . we doubt that the
trade off between a "wag the dog"-type transitory war euphoria and
$5 gas will be an accretive one for the administration at least in the
short-term. Others who certainly would prefer to avoid the record $140 WTI
prices seen just before the Lehman collapse are the majors, where margin
contraction can only be offset by very finite end-demand destruction. Yet
there are those who not only would like to see a surge in oil prices, but in
fact need it, to preserve their viability. Chief among them:
Iran.

Black Gold On The Black Market (Mobius)

Stealing the fuel, which includes gas condensate and refined oil as well as crude, is not hard. Some goes missing from lorries that are held up in lonely stretches of desert. More is siphoned out of lengthy exposed pipelines. Tapping the high-pressure pipes is dangerous: in 2010 a suspected attempt to puncture one produced an explosion that caused 28 deaths.

Environment

Hundred-Year Forecast: Drought (VeganD)

That extreme drought (which we have analyzed in a new study in the journal Nature-Geoscience) had profound consequences for carbon sequestration, agricultural productivity and water resources: plants, for example, took in only half the carbon dioxide they do normally, thanks to a drought-induced drop in photosynthesis.

In the drought’s worst year, Western crop yields were down by 13 percent, with many local cases of complete crop failure. Major river basins showed 5 percent to 50 percent reductions in flow. These reductions persisted up to three years after the drought ended, because the lakes and reservoirs that feed them needed several years of average rainfall to return to predrought levels.

Article suggestions for the Daily Digest can be sent to dd@peakprosperity.com. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

10 Comments

saxplayer00o1's picture
saxplayer00o1
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rhare's picture
rhare
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The great Social Security Myth

Social Security surplus dwarfed by future deficit wrote:

The Social Security trustees project the surplus will be gone in 2033. Unless Congress acts, Social Security would only collect enough tax revenue each year to pay about 75 percent of benefits, triggering an automatic reduction.

The article quoted above and the article on Social Security shortfall that saxplayer posted show how bad a trouble we are in and the complete misinformation that our media and most politicians have no interest in exposing.  We need as article titled "The great Social Security surplus myth".  Here would be a great start:

The Social Security Surplus Myth

There is NO Social Security surplus.  You have been lied to by politicians and the media.  The Social Security "Trust Fund" is special US treasury bonds - IOU's from the government to itself.  The "surplus" is not a pile of money or other assets that can be sold on the open market, it is IOU's from the government to itself.  Let that sink in for a while.

So, up until 2010 when payouts from Social Security exceeded income from Social Security taxes, the Social Security Administration exchanged those funds to the Treasury for special treasury bonds.  Social Security got a nice IOU, and the treasury dumped all those taxes into the general fund and they were spent.

After 2010, payouts from Social Security now exceed the taxes taken in, so the Social Security Administration has to redeem those special treasury bonds in order to pay benefits to recipients.  So now the big question - where does the government get the money to give to SS when the bonds are redeemed?  They have two choices - raise taxes to cover them or roll the debt to some other entity - previously that meant China, but now it means the Federal Reserve.

So what does this mean to you:

  • The Social Security Trust Fund is additional taxes you will pay.
  • The Social Security Trust Fund is higher prices due to inflation.

I don't know about you, but neither of those two things sound like a "Trust Fund".  Perhaps it's time the politicians and media come clean and stop referring to the "Trust Fund" and report that the Social Security Administration is now insolvent - today, not in 2033.

saxplayer00o1's picture
saxplayer00o1
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saxplayer00o1's picture
saxplayer00o1
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Posts: 2581
Boston Fed: 78 money-funds needed sponsor help

"Schapiro is considering two major reforms for the industry, including one that would impose capital restrictions on the funds combined with limitations or fees on redemptions by consumers. "

Treasury: U.S. to lose $25 billion on auto bailout

rjs's picture
rjs
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more social security nonsense

rhare wrote:

There is NO Social Security surplus. 

treasury bonds held: http://www.ssa.gov/cgi-bin/investheld.cgi

You have been lied to by politicians and the media.  The Social Security "Trust Fund" is special US treasury bonds - IOU's from the government to itself. 

no, those bonds are IOUs owed by the goverment to the workers who paid into the fund with every paycheck for 20, 30 or 40 years...like it or not, our government is a pension fund cum insurance company with an army

So, up until 2010 when payouts from Social Security exceeded income from Social Security taxes, the Social Security Administration exchanged those funds to the Treasury for special treasury bonds.  Social Security got a nice IOU, and the treasury dumped all those taxes into the general fund and they were spent.

just as Treasury bonds held by china, by mutual funds, and by banks as Tier 1 capital represent money that has already been spent..

After 2010, payouts from Social Security now exceed the taxes taken in, so the Social Security Administration has to redeem those special treasury bonds in order to pay benefits to recipients.  So now the big question - where does the government get the money to give to SS when the bonds are redeemed?  They have two choices - raise taxes to cover them or roll the debt to some other entity - previously that meant China, but now it means the Federal Reserve.

So what does this mean to you:

  • The Social Security Trust Fund is additional taxes you will pay.
  • The Social Security Trust Fund is higher prices due to inflation.

estimates are that if we raise the minimum wage to $10 (or $12, as james galbratih advocates), it will lift the pay of 28 million of us, which will then rebalance social security revenues & payments without raising taxes...

I don't know about you, but neither of those two things sound like a "Trust Fund".  Perhaps it's time the politicians and media come clean and stop referring to the "Trust Fund" and report that the Social Security Administration is now insolvent - today, not in 2033.

its nonsense to speculate what the country will look like in 2033 or 75 years hence as the article original stipulates...who could have predicted today even ten years ago? and calling the 75 year projection "a future" deficit" is an attempt to create liabilities for retirees who wont even be born for another ten years...

does anyone else find it strange to be living in the only country in the civilized world where serious adults hold conversations about throwing the elderly under the bus?

rhare's picture
rhare
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Step away from the puch bowl - your drinking the kool-aid

rjs, you might consider quoting each section that you are going to comment on instead of using italics, it makes it a lot easier to follow and determine who has said what.

rjs wrote:

treasury bonds held: http://www.ssa.gov/cgi-bin/investheld.cgi

no, those bonds are IOUs owed by the goverment to the workers who paid into the fund with every paycheck for 20, 30 or 40 years...like it or not, our government is a pension fund cum insurance company with an army

Okay, let's play a little game.  If you completely eliminate the "trust" fund, does it make any difference in who pays and get's paid?  The treasury must tax or borrow to cover any shortfalls in the inflow from SS taxes. The trust fund is simply an accounting gimmick.  Fancy writting on pieces of paper makes no difference.  If you think otherwise, please show how it will be different.

Yes, workers paid into the trust fund (as I have for almost 30 years), makes no difference.  The money was spent and either those receiving benefits get taxed, the younger generation gets taxed, we find some sucker to lend us money, or we print.

rjs wrote:

just as Treasury bonds held by china, by mutual funds, and by banks as Tier 1 capital represent money that has already been spent..

Yep - and they all represent capital that will never be repaid with anything other than possibly massively devalued dollars.

rjs wrote:

estimates are that if we raise the minimum wage to $10 (or $12, as james galbratih advocates), it will lift the pay of 28 million of us, which will then rebalance social security revenues & payments without raising taxes...

Raising the minimum wage does nothing to improve the situation.  it simply means things you have to buy go up in price to cover the additional labor costs.  If your going to simply raise the minimum wage to raise tax revenues you might as well just raise the SS tax, same thing - but it's less hidden than the "oh look were helping the poor people" farce played with minimum wage.

However, with a bit of simple math, we can show that raising the minimum wage as you suggest does not fix the issue:

Based on these numbers raising the minimum wage to $10 will bring in at most $16B, to $12 brings in about $28B.  (($10-$7.25) * 28,000,000 * 2,000 hours * 10.4%)) = $16B

The above is assume minimum wage workers are full time (probably a very bad assumption) and that raising taxes will not impact the employment rate - also generally a bad assumption particularly for the lower paid workers.

So how does that compare, with the real short fall numbers:

  • 2010: $29B
  • 2011: $25B
  • 2012 - 2016: Projected $66B - based on rosy assumptions of economic recovery.
  • Source

That $28B extra from that minimum wage sure doesn't look to cover the shortfall.  Also, these are the same people that didn't think there would be a shortfall until 2017.  Trust their projections going forward?

rjs wrote:

its nonsense to speculate what the country will look like in 2033 or 75 years hence as the article original stipulates...who could have predicted today even ten years ago? and calling the 75 year projection "a future" deficit" is an attempt to create liabilities for retirees who wont even be born for another ten years...

Agree, the problem is NOW.  Taxes will have to be raised immediately, benefits cut, or more borrowing to meet the current shortfalls - and they are projected to get worse.  Pretending there is a magical pile of money called the trust fund doesn't change a thing.

rjs wrote:

does anyone else find it strange to be living in the only country in the civilized world where serious adults hold conversations about throwing the elderly under the bus?

Nice hyperbole! However, if you want to use that language, we're not talking about throwing old people under the bus, they are already under it.  The problem is we are deluding ourselves, which was the point of my post.  The sooner we start realistically talking about our situation the better.

Oh, and be well assured that all the other countries that have over promised what can be delivered (all western countries) will be having the same conversation.  Either you make the current generation poorer to keep the promises or you come clean that it's all been a big lie.

Doug's picture
Doug
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just a footnote

rhare's description of the SS trust fund is technically accurate, but paints it in an unnecessarily negative light.  True, the trust fund is a bookkeeping entry, not a pile of money locked away somewhere.  But, it does what trust funds in other contexts do.  They take a pile of money and invest it somewhere.  The SS trust fund invested the money in gov't securities that collect interest, until the last few years the most conservative and secure investment you could make.  And still,US  gov't securities are considered a safe haven in much of the world.

That's not to say there is nothing wrong with the trust fund, it is dwindling since 2010 because the payouts exceed the income.  That situation is exacerbated by the payroll tax cut we have enjoyed the last couple years.  But, in the context of other gov't trust funds, principally Medicare, the SS trust fund is in pretty good shape.  Relatively minor corrections can ensure that it will be viable into the indefinite future.  Yes, the money will come out of taxpayers' pockets, but that's the nature of debt and investment.  The money was loaned to the gov't and needs to be paid back.  Any time you talk about gov't funds you talk about taxpayer funding.

Arthur Robey's picture
Arthur Robey
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Unclaimed ships.

In the wake of the global financial crisis, various industries related to shipbuilding are struggling with a large volume of unclaimed ships. 

Korean Joongang Daily

rhare's picture
rhare
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Posts: 1267
Kool-aid for all

Doug wrote:

rhare's description of the SS trust fund is technically accurate, but paints it in an unnecessarily negative light.

I don't think it's unnecessarily negative.  This would be the same as if you took money from your savings and put it into your checking account and spent it, then kept a little journal that said you would pay back your savings and held it out as an asset.  So to pay it back you have several options:

  • Live an austere life later
  • Work harder
  • Borrow from a credit card

For the government it means

  • Cutback benefits and services currently offered
  • Higher taxes
  • Borrow or print more money

The problem with the way it is presented is that this "trust fund" is different than any other government spending and it is not.  If this was the only game being played it might not be so bad since the government could potentially raise taxes (work harder), however, the federal government is already spending 1.5x more than it has revenues and now has to contend with ever increasing deficits in  the entitlement programs.

doug wrote:

But, in the context of other gov't trust funds, principally Medicare, the SS trust fund is in pretty good shape.  Relatively minor corrections can ensure that it will be viable into the indefinite future.

There is no trust fund.  If you completely got rid of the trust fund there would be no difference in the cash flows of the government.  Just as if you just tossed your little journal of promises to pay back your savings account.  So how can you remotely say the trust fund is in good shape - it's a LIE that we tell ourselves to hide the severity of the situation.

If we use realistic economic numbers, the NPV of US debt is around $200T now - or about 300% of world GDP.  How exactly is the US government going to tax enough to cover that debt?  Since if you assume that the trust funds are "in pretty good shape", that implies the ability for the federal government to be able to raise taxes or borrow to cover the spending. 

tictac1's picture
tictac1
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Posts: 172
SS is simply another Ponzi

SS is simply another Ponzi scheme based on an ever-increasing number of victims, er, participants, to continue.  Rhare is not only technically acurrate, but practically accurate.  Doug is incorrect in saying that SS is like any other trust fund, it is not.  The US Chamber of Commerce has a pretty good write-up on the differences, but you can read it for yourself.

The elderly threw their progeny under the bus a LONG time ago, not the other way around.  Remember the bumper sticker "We're spending out children's inheritance"?  A more accurate version might read "We're spending our children's wages".

People seem to forget government has no product, it does not make money.  It takes it from someone or something that does.  Interest paid to SS on bills comes from where?  That's right.

I'd love to see Chris do an analysis on what percentage of our dollar we actually get to use.  There's plenty of write-ups on the total percentage of wages that go to government, but that's just the cream off the top.  Every time a dollar changes hands, the government takes a cut.  Every product you buy has taxes, permits, fees, etc. built into the price, those all represent a further dilution of the spending power of that dollar.  Shoot, look at cars.  They are re-taxed every time they are sold, and every year they exist!

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