Blog

Social Security Stunner; Bankruptcy of Nation Moved Up Several Years

Wednesday, April 1, 2009, 1:35 PM

Well, Obama is talking tough with the Big Three, even letting on that the bankruptcy of GM and Chrysler is a very real possibility and may happen soon.

Since these are bankrupt companies, I suppose this makes a certain amount of sense, leaving aside the perplexing silence on why a similar approach is not being taken with insolvent banks. I guess it's possible that manufacturing paper profits is now “more American” than fashioning real goods out of hard materials.

But it goes further than this. The current administration might as well be worrying about the fact that the US government itself is hurtling towards bankruptcy.

Not only are debts exploding - moving smartly past “unsustainable” and into “ruinous” - but revenues (tax receipts) are falling like a rock.

Yesterday it was reported that the difference between Social Security income (taxes) and outlays (benefits payments), which is known in Washington-speak as “the SS surplus”, would shrink to zero next year.


The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.

First of all, let’s clear something up. As we’ve covered here repeatedly, there is no such thing as the Social Security “Trust Fund”. A “trust fund” implies that there are funds held in trust somewhere. Instead the Social Security account consists of several 3-ring binders filled with government IOUs which will have to be repaid by taxpayers (surprise!).

In case you missed it in the Crash Course, here it is again – a picture of Bush physically standing next to the entire SS “trust fund”.

Bush_holding_SS_bond.jpg

I am not kidding. That’s the trust fund. Right there in that snazzy filing cabinet.

You could replicate the entire thing with about a $300 shopping trip to
Staples, unless you wanted the fancy locking cabinet too. Then you
might have to expend closer to $700 in total.

Next, it was only last year that I was writing about the impeding fiscal calamity that was awaiting us all in 2017 when the outlays for Social Security were slated to exactly match receipts. Now that date could be as early as 2010, apparently.

CBO_SS_forecasts.jpg

In the chart above (source), I want you to note the extreme deterioration in surplus funds between the 2008 and 2009 forecasts. Can you spot the trend?

Here’s a prediction – these too will be revised to the worse in about 6 months. I base this prediction on my belief that more people will opt for retirement than are currently projected and that entitlement program tax receipts will be below current projections. Also, nearly every prediction by the CBO has been revised to the worse over the past year so I am “riding the trend” with this prediction.

In the projections for the table above, the CBO has assumed no cost of living adjustments (COLAs) in 2010, 2011, or 2012 and a return to economic growth next year. If either of those assumptions proves wrong, the table above gets smoked to the downside. I give that a better than 90% chance of happening.

From a budget-busting perspective, last year where the US government had a $73 billion Social Security surplus to spend, this year it will be a paltry $16 billion and next year it will be a number indistinguishable from zero. It is hard to overstate the importance of this shift.

This means several things. Instead of $703 billion coming in over the next 10 years, the current (overly optimistic) projection calls for only $83 billion. This means at least another $620 billion in fresh borrowing will have to occur.

More importantly, this means that the United States eventual date with bankruptcy has been moved forward by about 8 years or so. It also means that instead of being some future problem, a few administrations down the road, it is a near certainty that the current administration will have to confront some very difficult funding decisions that will be forced by the inability to borrow enough to pay for everything.

This isn’t necessarily a bad thing. For those who question the wisdom of having troops stationed in 150+ countries the funding crisis will translate into reduced foreign troop levels. The constantly expanding budgets of federal agencies tasked with keeping track of average Americans will face stiffer competition.

Here’s another entirely silly paragraph in the article:

While the new numbers will not affect payments to current Social Security recipients, experts say, the disappearing surplus could have considerable implications for the government's already grim financial situation.

Here’s how Mainecooncat expertly encapsulated the folly of that last sentence:

If there’s no longer going to be a surplus and the US government is insolvent how is this not going to affect payments to current recipients? Through more borrowing obviously, which simply dilutes the worth of future payments. So it patently will affect payments.

Yes indeed, good question, how can future payments not be affected? It’s a complete mystery to me why members of the media can manage to understand how a company overissuing common stock is dilutive to existing shareholders but cannot manage to understand that a country overissuing its common stock (the dollar) is dilutive to existing holders. But time and time again, this proves utterly elusive as a concept, especially in the Washington Post which has never, in my experience, managed to draw this connection.

And here's another "winner":

Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 -- so long as the Treasury repays its debts.


My comment:
Well, then, “liberal analysts” need to go back and take some basic accounting courses. The idea that it’s somehow possible for an entity to owe itself money, especially a government, is patently ridiculous. If it were possible to owe oneself money, then we’d all be fantastically rich. Let me put it this way, if you cannot figure out how to loan yourself money then the government cannot do it either. The Treasury is no more capable of "repaying its debts" than it is capable of reversing the flow of time.

This next piece from the article captures this busted logic with comic perfection:

And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

I am struck nearly speechless at the gigantic gap in logic on display in this sentence.
“...repaying the billions it borrowed” by going “further into debt.

This isn’t that hard, folks. It is not possible to “pay off your debts” by borrowing money. The only source of funds the government has is either printing, which is a thinly disguised tax on all holders of money, or taxes which are, um, taxes and come from taxpayers. More borrowing is just pushing the obligation to repay off onto future taxpayers. It's really that simple.

The honest way of phrasing this would be “future taxpayers will have to cover the spending excesses of current and prior generations and will either do this directly or indirectly, depending on whether the government elects to cover the shortfalls with taxes or printing, respectively.


Conclusion:
The United States government has a date with a fiscal emergency that will not differ appreciably from the current predicament in which GM finds itself. This future crisis will look like, act like, and feel like a bankruptcy. With history as our guide, we can be almost completely certain that political and monetary leaders will prefer a policy of printing over taxation and that this will ultimately result in a crisis of the currency involved.

There’s still time to do the right thing at the policy level, but not very much.

We are only a few years away, at most, from an irretrievable mismatch between our fiscal policies and reality.

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

51 Comments

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

"[A] few years away?"  How is it not right smack on top of us?

Ready's picture
Ready
Status: Platinum Member (Offline)
Joined: Dec 30 2008
Posts: 917
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Lemonyellowschwin wrote:

"[A] few years away?"  How is it not right smack on top of us?

We still have lots of room to print before hyperinflation sets in. Plenty if time to print a few dozen trillion dollars!

Rog

cannotaffordit's picture
cannotaffordit
Status: Gold Member (Offline)
Joined: Jun 12 2008
Posts: 273
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Like a 3000 pound weight, dropping on a frog.

djhester1940's picture
djhester1940
Status: Bronze Member (Offline)
Joined: Sep 22 2008
Posts: 35
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

I am curious about the way the government estimates future revenue into the SS bucket. Since all other numbers we get from the government are manipulated in some way to make things look better than they really are, what manipulations are applied to the SS numbers. One question I have is: do these estimates account for the fact that retirees quit paying into SS when they retire and begin taking SS payments?  If I understand how this will work, it seems that baby boomer retirement will not only effect the budget by taking their benefit payments, but will even more greatly effect it by not putting anything back into the SS fund.

When I look at the demographic charts in the CC, I see that this decrease in revenues from the BB retirees having an even greater impact on SS then the benefits they receive.

Am I overlooking something here?

Don

Quercus bicolor's picture
Quercus bicolor
Status: Gold Member (Offline)
Joined: Mar 19 2008
Posts: 470
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
dbajba wrote:

Like a 3000 pound weight, dropping on a frog.

And the weight is being dropped from 1 mile.  As long as you don't look up, everything seems just fine. 

 

Steve 

bparker321's picture
bparker321
Status: Member (Offline)
Joined: Oct 7 2008
Posts: 4
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

This is the most un-funny April Fool's Day prank I've ever witnessed.

jkibbe's picture
jkibbe
Status: Martenson Brigade - YouTube Channel Admin (Offline)
Joined: Aug 5 2008
Posts: 71
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
bparker321 wrote:

This is the most un-funny April Fool's Day prank I've ever witnessed.

 If only... :(

TechGuy's picture
TechGuy
Status: Gold Member (Offline)
Joined: Oct 13 2008
Posts: 419
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

<blockquote> And the weight is being dropped from 1 mile.  As long as you don't look up, everything seems just fine.</blockquote>

Terminal Velocity: There would be no difference between dropping it from a height of a mile or just few hundred feet.

 FWIW: I have repeatively commented that SS was in trouble much sooner than everyone realized. Since 2002 I been on a Soapbox declaring that SS will be insolvent by 2010-2012. Even David Walker (Former US Controller) said we have a problem by 2014, and that was assuming that we didn't have a recession.

 

 

bikemonkey's picture
bikemonkey
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 45
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

I'm reminded of my insolvent mother in-law. We tried to help her and understand just what she owed.  It wasn't much.  But as it spun out of her control, the bank late fees, interest, penalties, and lawyer fees make the system so dynamic that you could not pinpoint ever how much she owed. 

We gave up and told to her to file Bankruptcy.  Just like our government will have to.

btw, has anyone else noticed what appears to be a lack of coverage on the G-20 riots?

joemanc's picture
joemanc
Status: Martenson Brigade Member (Offline)
Joined: Aug 16 2008
Posts: 834
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

and the hits keep coming, now it's the Pension Benefit Guaranty Corporation:

Quote:

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks. 

Quote:

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/

Is it me, or does it feel like Groundhog Day?

Roundhouse's picture
Roundhouse
Status: Bronze Member (Offline)
Joined: Sep 14 2008
Posts: 36
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Want to get angry people in the streets?  Deny then the money they put into SS WITHOUT OPTION for 40 years.  I might be old but lordy am I pissed.  The greatest ponzi scheem ever devised and who accomplished it?  Our own government!

Vent..vent...

....leaves computer to work on guillotine.

 

 

Ruhh's picture
Ruhh
Status: Gold Member (Offline)
Joined: Nov 12 2008
Posts: 259
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
bikemonkey wrote:

btw, has anyone else noticed what appears to be a lack of coverage on the G-20 riots?

this from canadian public broadcaster CBC

http://www.cbc.ca/world/story/2009/04/01/g20-protests-london034.html

enjoy

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

 

If you're nutty enough, you can read the Financial Report of the United States Government here:

http://www.fms.treas.gov/fr/index.html

Check the chart on Page 124 of the Supplemental Information Chapter (i'd paste it here if I knew how).

The chart shows the previous forecasts of Social Security expenses exceeding revenues in 2017 and all of the money previously loaned to the Treasury being paid back into the Trust Fund to keep Social Security going to 2041.  The chart shows expeditures take off in the next few years, I presume due to the Boomers retiring.  Now with the most recent CBO forecast I assume the Income trendline should be revised way downward also.

Tom

 

  

 

DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Oooh look, the market's up - funny that, with G20 this week.

Well, I guess we must be into a new paradigm.

Really bad figures yesterday, the car makers today telling how bad their sales are and the housing sales for last month up (but still mighty bad) and all of a sudden the markets think everything's fine. FTSE was up nearly 200 points (!) yesterday (despite the S & P being DOWN nearly 30!) and up 80-odd points today (on a total range of about 170 points) with the S & P also being up about 24.

I can understand yesterday's move being due to financial year and quarter ends in the UK, but the disparity between the UK and US looked very odd.

Call me a cynic, but unless we're into a new paradigm and unless Chris's missives are wrong (erm, I don't think so), it might be tempting to think that the big institutions have bid the market up to help the G20 look good.

Chris's piece today really makes the folly and blindness of what's being done scary.

David

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5733
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

OMG, they didn't...

/read, read, read/

They did!!

That's either the most idiotic or most corrupt action I have ever heard about in the last 15 minutes.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5733
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Here you go Tom.  Of course the laughable part is the "covered by interest and trust fund assets". 

How does one pay interest to oneself to cover one's own shortfalls?  And, what assets?

 

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
Joined: Feb 11 2009
Posts: 2237
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

This looks like just another slice of S on the HTF sandwich.  

I'm still sitting on a tad o'money in the market, riding this hallucinated bull.  But I'm thinking the time is very short before I'm gonna slide it into cash.  

I feel like Luke Skywalker in my x-wing in the Death Star trench.  Targeting computer off, listening to the l'il voice in my ear.

And when you stop laughing, give Obi-Wan my regards.  [grin]

Viva -- Sager 

SamLinder's picture
SamLinder
Status: Diamond Member (Offline)
Joined: Jul 10 2008
Posts: 1499
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Roundhouse wrote:

Want to get angry people in the streets?  Deny then the money they put into SS WITHOUT OPTION for 40 years.  I might be old but lordy am I pissed.  The greatest ponzi scheem ever devised and who accomplished it?  Our own government!

Vent..vent...

....leaves computer to work on guillotine.

 

Roundhouse,

Need a head - oops, I mean hand with that?  Wink

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Enron, politicians and Madoff - all cut out of the same cloth (toilet paper). If this (SS) isn't pathetic enough, what these momos are calling a "financial rescue" is now nearing 12.8 trillion - which is greater than GDP.

DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Davos,

That worries me.

Even overnight in the UK, the (S & P) market is STILL going up (818 as I write). Are we REALLY wrong about this all?

David

 

bikemonkey's picture
bikemonkey
Status: Bronze Member (Offline)
Joined: May 17 2008
Posts: 45
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Thank you so much... the walls were starting to close in and I was beginning to lose my mind over this!

kevinkr's picture
kevinkr
Status: Member (Offline)
Joined: Jan 14 2009
Posts: 7
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

I'm decades away from retirement. This posting reinforces the reality, to me, that there will not be any type of SS when I reach an age where I could receive this so-called benefit. If there is good probability of higher taxes and a lower dollar in the future, is it time to cash in the 401ks and Rollover IRAs?

Nikki.Pender's picture
Nikki.Pender
Status: Member (Offline)
Joined: Mar 29 2009
Posts: 3
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

OMG, they didn't...

 

OMG, they didn't... what???

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Hello DavidC:

Enron logo, designed by Paul Rand

 The Fall of Enron Stock

 

cat233's picture
cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Re:  post #24

Good one Davos!

Cat

 

castlewp's picture
castlewp
Status: Gold Member (Offline)
Joined: Oct 7 2008
Posts: 304
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Hi Cat,

Why does the dollar go down when the markets go up and visa versa?  Maybe a dumb question, but I don't see the correlation.  Thanks, Bill

Ready's picture
Ready
Status: Platinum Member (Offline)
Joined: Dec 30 2008
Posts: 917
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
cat233 wrote:

Re:  post #24

Good one Davos!

Cat

 

I count at least 5 dead cat bounces there for Enron, no offense cat! There were 8 I believe on the way down during GD I.

I have to say that I am amazed at just how starved the markets are for any reason to bounce up. Futures up on the G20 meetings? What will they possibly come up with to fix this mess?

The market is schizophrenic!

Best,

Rog

cat233's picture
cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Re:  post 26

Hi Bill,

I don't know... I give up on any understanding of the USD.  I can't get my head wrapped around the fundamentals because I don't know what they mean anymore.  I don't understand what all the printed money going to companies truly means.

As to why the only way to make money in the market is to do what the market is doing.  You can't do what you think it should be doing.  The fundamentals don't matter, they all seem to be a lie anyway.

Be market neutral... Do what the charts tell you, whether or not you understand why.  They don't lie.

Cat

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5733
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Well, the fundamental explanation would be that companies both can export more as their home currency weakens, and receive higher dollar payments for their overseas goods and services due to the exchange rate (price your products in Euros, and enjoy more dollars as the dollar declines against the Euro).

But the real reason, as far as I am concerned, is the extremely high correlation between futures buying activity and the dollar price of the Yen.

Briefly, as I and many others have been noting that for the past year or so, there's been a very, very high inverse correlation between the Yen and stock markets.

My explanation for this is that the Yen is being used as a massive source of liquidity by someone. Sell the Yen, buy stocks. I am certain that lots of black-box trading programs are wired to this relationship because it is so tight, so often repeated, and pretty much of a "take it to the bank" sort of relationship.

When I want to confirm a move in the stock market, I always begin with a glance at the Yen chart. It rarely lies.

For example, today the Yen chart says the stock market is going up.

Yen.jpg

So I think that the explanation has less to do with the fundamentals about the dollar and more to do with the hyper liquidity being pumped out by our friends in Japan which is being used as a primary fuel source for stock markets around the world.

cat233's picture
cat233
Status: Platinum Member (Offline)
Joined: Aug 20 2008
Posts: 575
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Chris,

Thank you for the explanation.  You're the man!

Cat

castlewp's picture
castlewp
Status: Gold Member (Offline)
Joined: Oct 7 2008
Posts: 304
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Thanks, Chris.

Bill

brjohnson789's picture
brjohnson789
Status: Bronze Member (Offline)
Joined: Aug 27 2008
Posts: 52
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Hi Chris, I'm going to have to disagree with this statement:  "...the funding crisis will translate into reduced foreign troop levels. "   Based on Obama's commitment to more troops in Afghanistan, I don't see why a little bankruptcy would cause us to rethink our whole empire thing.  Besides, where would the UN get their troops from then if we decided to close up shop?   If history shows us anything, when governments are in crisis you rarely see a decrease in military activity. 

Soulmaster's picture
Soulmaster
Status: Bronze Member (Offline)
Joined: Sep 16 2008
Posts: 27
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

It is interesting how the focus is on the difficulty the government is going to have due to the inability to borrow from the Social Security 'trust fund' rather than what the focus should be on; the millions of Americans who currently depend on Social Security to live...we're talking about living versus frivilous spending! 

 

"The SS fund payments will equal disbursements in 5 years"

"OK well maybe we should stop borrowing from it for now"

 

...I suppose that train of thought could only take place in a fictional government?

 

 

SingleSpeak's picture
SingleSpeak
Status: Platinum Member (Offline)
Joined: Dec 1 2008
Posts: 503
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Chris,

The obvious growing frustration with our "leaders" that you express is being felt by all of us that can actually balance a checkbook. Thank you for continuing to shine the light on these obsurdities as the day of reckoning approaches.

hughacland's picture
hughacland
Status: Bronze Member (Offline)
Joined: Oct 7 2008
Posts: 25
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

And writing from here in the UK, where our governments have just pledged $1,000,000,000,000 to - in the words of Gordon Brown - "fight the recession", things indeed look grim. A very significant amount of this trillion will go to the IMF.

Exactly where do these politicians get the nerve?

Our British MPs are paid inflation-linked salaries and pensions. Is it the same with the US Congress and President? (I bet it is)

If so, then there is our answer. So long as the people in power and are able to print money, why should they care for the honest bloke trying to keep up with inflation. The idiots at the top will be ok, so long as we vote for them!

And who exactly is the IMF? I vote for Mr Andrew Turner MP (Conservative, Isle of Wight). He goes to Westminster, on my behalf, and champions my cause. Exactly what input does he have on the decision making process at the IMF? I would wager precisely none. But it is my tax - either through receipts to the Treasury, or inflation - which will fund the IMF. And they call this democracy!

I know that most here will be US citizens. Certainly you will all be aware that the Revolutionary War was predicated upon the principle that men should not be forced to pay taxes with out representation. Well, how exactly is the average American voter or British voter going to be represented at the IMF? We are not.

I have always truly respected the United States. I believe that your written Constitution is the most beautiful codification of the aspiration of the human spirit to be free. What gives me sleepless nights is that there is a growing disconnect between the people and the power-brokers. The IMF is a truly terrifying instrument of oppression. Democracy is on life support. Only the implied freedoms contained within the US Constitution can save all the people of the world from tyranny. And I believe that time is running out for the American people to have any say in the matter. Please, America, look to your Constitution. For the sake of us all.

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Gadfly's picture
Gadfly
Status: Silver Member (Offline)
Joined: Dec 6 2008
Posts: 127
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
TechGuy wrote:

Terminal Velocity: There would be no difference between dropping it from a height of a mile or just few hundred feet.

  Since Time = Distance / avg.Speed  there is in fact a difference between dropping from a height of 1 mile(5280 feet) and a few hundred feet.  That difference is the amount of time the object will impact the frog, although the force(and the outcome) will be the same.

Gadfly's picture
Gadfly
Status: Silver Member (Offline)
Joined: Dec 6 2008
Posts: 127
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Ruhh wrote:
bikemonkey wrote:

btw, has anyone else noticed what appears to be a lack of coverage on the G-20 riots?

this from canadian public broadcaster CBC

http://www.cbc.ca/world/story/2009/04/01/g20-protests-london034.html

enjoy

Friend, please tell me you don't normally receive your news from the CBC.  I trust them as much as I do the NYT, which is not at all.  The Canadian Government seriously needs to cut funding to these bleeding-heart clowns.  They don't even do "Hockey Night in Canada" right anymore (check back issues on McLean's on this very topic).

janaia's picture
janaia
Status: Member (Offline)
Joined: Apr 3 2009
Posts: 1
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Jim Puplava of financialsense.com and others call that the Yen Carry Trade. If I understand right, borrowers get the Japanese Yen at very low interest, using it to buy stock or other things. Basically using the Yen for free. Hence the inverse relationship between the Yen and the stock market.

kevinkr's picture
kevinkr
Status: Member (Offline)
Joined: Jan 14 2009
Posts: 7
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Just for fun, I did a quick correlation study of the daily values of the SP500 vs. the USDJPY pair for the last year. The correlation coefficient was 0.83. It isn't perfectly correlated, but the relationship is pretty high. This correlation, however, does not imply causation.  

Definition of the correlation coefficient:

The correlation coefficient is a number between 0 and 1. If there is no relationship between the predicted values and the actual values the correlation coefficient is 0 or very low (the predicted values are no better than random numbers). As the strength of the relationship between the predicted values and actual values increases so does the correlation coefficient. A perfect fit gives a coefficient of 1.0. Thus the higher the correlation coefficient the better.

Woodman's picture
Woodman
Status: Diamond Member (Offline)
Joined: Sep 26 2008
Posts: 1028
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Mish critiqued Social Security also:

http://globaleconomicanalysis.blogspot.com/2009/04/social-security-there-is-no-trust-there.html

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Just make sure you take your frustrations to the mid-term elections............

 

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

i wonder if anyone would care to speculate on what will happen to gov. pensions like the retirement of military personnel. also what about va benefits.

my assumption is that these will be the last things to go down but if they do .........i seem to remember a march on washington in the thirties by some former military types..................i think the swhtf .........

just think of a large group of true believer graduates of our military academies, vietnam vets iraq and afghanistan vets etc. being told it was all a big mistake. our local va hospital is outsourcing some procedures to the private sector. sounds expensive

but maybe not

Ruhh's picture
Ruhh
Status: Gold Member (Offline)
Joined: Nov 12 2008
Posts: 259
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Quote:

Friend, please tell me you don't normally receive your news from the CBC.  I trust them as much as I do the NYT, which is not at all.  The Canadian Government seriously needs to cut funding to these bleeding-heart clowns.  They don't even do "Hockey Night in Canada" right anymore (check back issues on McLean's on this very topic).

I try to get my news from a wide variety of sources. What I like to do is scan the headlinds everywhere from CBC, CTV, CNN, BBC, AsiaTimes, TehranTimes, local news and of course the great daily digests posted here. I actually don't mind the CBC and find they have some decent radio (minus their overuse of puns) and news coverage. I find they cover a broader range of topics as they don't seem so worried about offending their sponsors (besides the Liberals of course). When it comes to radio I just can't stand commercial radio and foremost actually chose my local listener supported radio.

Cheers

Bart Haggin's picture
Bart Haggin
Status: Member (Offline)
Joined: Apr 3 2009
Posts: 1
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

I realize that there is a separate payroll tax for Social Security.  That money is being used for current expenses in the "combined budget".  The way that is done is by the government "borrowing" from the separate Social Security payroll tax by putting "IOUs" in the SS "bucket".  The catch is that the IOUs are Treasury securities (T-bills, Treasury Certificates, Treasury Bonds, each with their own maturity dates).  These have to be paid off by the govenement just like any other Treasury security that is held by private people or governments. 

Good management at this time would be for the government to "roll over" some of these securities that pay high interest rates for current securities now that the rates are lower.  The important thing to remember is that all Treasury securities are guaranteed by the US governement no matter who has them.  When they mature the government pays them off with either current revenue or sells more securities to pay off the old ones.  This is standard procedure in government or business. 

So is there concern that the US government would not pay off the Treasury securities that replaced money taken from the SS"buket" but it would pay off all the other Treasury securities?  Aren't all Treasury securities equal?  They all have to be paid off on the matury date.  Why be more worried about the Treasury securities that are "on file" for Social Security?

Bart Haggin

 

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Bart -

I think it's more of an issue that the US Government CAN"T pay than wouldn't pay off their obligations.

At least not without taxing generations that haven't been born yet - and that's just to meet current obligations, much less what will be incurred over the next several years - until SS implodes.

strabes's picture
strabes
Status: Diamond Member (Offline)
Joined: Feb 7 2009
Posts: 1032
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

joe2baba, there's no question they will reduce pensions and all other operational outflows if necessary (that's why this social security issue isn't as big of a deal as claimed here...sorry, but everybody already knows the outflows will be shutdown/reduced as soon as necessary).  you're probably right that pensions will be one of the last budget items cut because the govt needs its security apparatus to keep itself alive.  but avoiding default on treasuries is priority #1...all other demands for federal money is subordinate. they can handle riots and social unrest and marches on DC from academy graduates...it's not hard to stop those.  but they can't handle national foreclosure imposed by our creditors (asia).

above it was asked about the inverse correlation between the $ and equities.  it's just capital flows based on appetite for risk...as desire for safety goes up, capital flows out of equities and emerging markets (higher risk currencies) and moves into high-grade fixed income and safe vehicles like $.  when desire for risk/return goes up, it flows the other way.  

 

robinpc's picture
robinpc
Status: Member (Offline)
Joined: Apr 3 2009
Posts: 1
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
bikemonkey wrote:

btw, has anyone else noticed what appears to be a lack of coverage on the G-20 riots?

The only "rioting" was one or two jerks breaking windows of the defunct RBS bank, following provocation by police. Meanwhile at another location you can see hideous police brutality against peaceful protesters, video here:

.  Naturally there is no mention of this in the ms media which just goes on about police "expecting" violence instead.

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Dogs_In_A_Pile wrote:

Bart -

I think it's more of an issue that the US Government CAN"T pay than wouldn't pay off their obligations.

At least not without taxing generations that haven't been born yet - and that's just to meet current obligations, much less what will be incurred over the next several years - until SS implodes.

Don't overlook the Print to Pay option. Until something implodes. Or perhaps that's what you mean by taxing unborn generations.

1440 minutes's picture
1440 minutes
Status: Bronze Member (Offline)
Joined: Dec 29 2008
Posts: 51
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...

Is this an April Fool joke?

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5733
Re: Social Security Stunner; Bankruptcy of Nation Moved Up ...
Nope.
That article is 100% real.
 
Thanks for asking.
 
Chris

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments