FedUpUSA

I wish there was something approaching an honest reporter left in this country among the mainsleaze media.  But there’s not.

Updated 4:05pm ET The trustees of the Social Security system said Monday the fund that helps sustain retiree and survivors’ benefits will become exhausted in 2033, three years sooner than they projected last year.

At that point, payroll taxes and taxation of Social Security benefits will provide only enough income to pay about 75 percent of the benefits that Congress has promised to retirees and survivors.

In practical terms, this means that a 40-year-old worker who is eligible to collect retirement benefits in 2039, would see his or her expected retirement benefit cut by about 25 percent, unless Congress took action to change the program’s funding or its benefit structure.

So far so good.  But it’s the assumptions that are the problem:

The trustees said that to keep the Social Security trust funds solvent over the next 75 years, Congress could take a number of steps:

• increase the payroll tax rate from its current level of 12.4 percent to 15.01 percent;

Huh?

The Payroll Tax is not 12.4%; that’s a lie.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

So the tax is actually 10.4%.  And note carefully that the Trustees said that a roughly 2.5% increase would balance Social Security.  But we’ve done exactly the opposite by almost exactly the same amount.

So who’s going to be honest and call for (1) an immediate full stop to that payroll tax cut and (2) an increase in the payroll tax to 15%?

Nobody.

In point of fact there’s another option for Social Security that would make even more sense — index to longevity.  That would, along with a less than 1% increase (to 13%; the “cut” that’s allegedly temporarymust go away right here and now in any event) put the system back into balance.

In short Social Security is pretty easy to fix.  It’s unpopular to talk about what has to happen to fix it, but it’s fixable and at a reasonably-small cost to the average employee in terms of tax impact.

Separately, the trustees, who are also the trustees of the Medicare program, reported that the Medicare fund that pays hospital costs for older and disabled Americans will be exhausted by 2024, the same forecast as they made last year.

After the assets of the Medicare fund are gone, if Congress were to take no action, projected Medicare revenue would be adequate to cover 87 percent of the estimated spending in 2024 and about two-thirds of projected costs in 2050.

Nonsense.  These figures are nowhere near accurate as they do not include the 9.2% rate of increase that is currently being suffered.

The BEA says that compensation of employees is $8.4 trillion (last quarter of 2011, which is the latest available at present.)  That’s $244 billion a year in Medicare tax (2.9%, both employer and employee parts.)

But the Federal Government spent $820 billion last year on health costs, approximately $550 billion of it in Medicare and Medicaid.  While the program claims to have taken in $530 billion there’s obvious game-playing going on here as the total employee compensation as of the last quarter of 2011 is annualized to $8.4 trillion and Medicare tax is 2.9% of this, or $244 billion.

On a basic cash-flow analysis and given the $244 billion of actual bonds in the system for Medicarethere is about one year of benefits available on a cash-flow basis, including tax receipts and “bonds in the drawer” for Medicare.

To be succinct Medicare is functionally bankrupt right here and now!

Medicare and Medicaid cannot be fixed at all as the problem is not found in those programs — it is found in the underlying medical system in our nation.

Simply put we have to shut down the cost-shifting, including that represented by:

• EMTALA, which resulted in the destruction of charity care in general; the Catholic Church “cheered” this as it’s roughly six hundred hospitals were largely relieved of being fully-charity-funded (that is, from your donations in the plate on Sunday) and managed to shift a huge part of that funding to you, the taxpayer, via explicit health “insurance” and private payer support!  This of course the Church does want to talk about; a “gun up the nose” isn’t charitable at all, yet this is much of what so-called “charity hospitals” do today.  The Church needs to be called out on this loud and long; they’re liars and frauds and have done their level damndest to pretend to provide charity care while offloading it on the general public.  This sort of intentional deception is a Satanic abuse of the alleged moral high ground the Church claims for itself.
• Outrageous development cost shifting from the rest of the world to the United States; price controls in other nations effectively prohibit the cost of development of new drugs and devices from being borne by health systems in other countries.  Canada and the UK are two of the worst offenders but hardly the only ones; other nations frequently threaten to break patents wholesale unless they get favored pricing.  The medical industry then got passed laws prohibiting reimportation, codifying a “wall” in federal law with felony penalties for breaches that allows this rip-off of the American consumer to continue. As a consequence Americans often pay 10x or even more what a Canadian pays for the same drug or device; we effectively cover all development costs for the entire planet.  This must end — now. 
• Specific legal exemptions from anti-trust law and shielding from consumer-hostile practices such as permitting and even encouraging disparate billing for procedures, drugs and devices depending on how one pays; a discriminatory act that when taken for the purpose of reducing competition is flatly illegal in other fields, blatant limiting of competition for various technological practices (e.g. licensing restrictions prohibiting the free opening of new MRI centers to drive down costs) and other acts that in any other field would land the parties involved in the graybar motel for felony criminal violations of anti-trust and restraint-of-trade law.

All of this combines to cause the cost of medical care in the United States to be a literal double that which is charged and obtained in other nations.  We simply cannot afford to continue on this path as the growth rate (9.2% compounded for the last 30 years) will result in the bankruptcy of the federal government and destruction of our economy within the next two decades.

The game-playing within the system cannot be maintained; eventually cash flow always wins.  You can move things around and pretend for a while but doctors, hospitals and others in the supply chain don’t take empty promises, they want checks.  Eventually you are forced to admit that the money doesn’t exist and you’re shuffling the deck and playing with the cash flow from one place or another so as to avoid telling the truth about what’s really going on in the budget and these funds.

This problem has to be solved, and solved now.  Neither political party will talk honestly about this, but we must as Americans demand both the truth and real resolution, as the path we are on will resolve in a disorderly collapse of our medical system and shortly thereafter our economy and government.

We cannot afford to continue to play the game that both the Republican and Democrat parties are running in this regard, nor are the so-called “third party” claims (e.g. Gary Johnson) honest assessments either.

The medical system in this country is terminally broken and if it is not corrected now we will all discover that there is simply no money and thus what people claim they have been promised will be shown to be a sham and collapse — and this outcome will be apparent much sooner than people think.

Anyone smell the smoke yet?

There’s a definite problem over in Euroland that “suddenly” became apparent this morning.  Between the French elections (in which Sarkozy appears to be toast) and the Dutch government collapsing over an austerity fight, we now add the ECB and Bundesbank tiff:

Almost a year into his new job as the head of Germany’s Bundesbank, Weidmann, 44, has matured from ChancellorAngela Merkel’s discreet right-hand man at global economic meetings into one of the few European policy makers warning that governments are failing to do what’s needed to rescue the euro.

How do you “rescue” something when you refuse to have an honest conversation about what’s broken?  Nobody over in Euroland — or here in the United States — is doing so.

There’s nothing complicated behind the reason our economies have failed to actually recover: We’re still spending more than we make.

What do we have to fix?  This:

Since 1980 your earnings power, in real terms, when accounting for monetary inflation has been strongly negative. 

We covered up would have otherwise been an outright revolt (really — a decade of 15-20% of annualized loss of purchasing power would have led to exactly that!) with massive credit extension to individuals and corporations.  This is the history of the housing bubble — this chart — and it goes back to 1980!

There are those who will argue that this graph is a “distortion” as it includes the credit created specifically as “financial credits.”  Fine, I’ll remove that.

Now how are you going to continue to play asset-price inflation games when there is no price-adjusted income growth so you can pass the bag to the next group of people, eh?  There is only one way – fraud – and the refusal to address the truth is why we’re here.

This was not an accident.  It was and remains a public and intentionally-covered up fraud.  The coverups came in the form of the housing bubble, massive offshoring of labor and exploitation of both environment arbitrage and effective slave labor overseas along with currency and interest rate manipulation and bank credit fraud of unprecedented size.

The compounded amount of damage done since 1980 truly boggles the mind.  Oh sure, a few people have made out like bandits; look at the escalation in certain asset prices!  But it has come through making it utterly impossible for anyone in the current generations to follow in the footsteps of those who “enjoyed” these distortions which guarantees the collapse of these asset prices as there is no way for the current holders to “monetize” them by selling them to someone else who is young and coming up, except through attempts to further extend this scheme.

This is the very definition of a ponzi scheme — and yet we have had no honest discussion of what has happened here or in Europe.

There’s no way out of this box without recognition of both what we did and deflation of those bubbles.  The acts of our government and those across Europe have all served to further these frauds rather than expose and excise them.

Those who point to temporary recovery of “asset prices” (e.g. the stock market) are missing the forest for the trees.  Attempts to further continue this ponzi scheme are doomed to failure, as the only way one can “maintain” these asset prices is for a new group of people to find ways to continue to take the pass of the “bag” at ever-higher prices.

That, in turn, requires continued credit creation and that requires there be someone who is both willing and able to borrow so that credit can be created!

We ran out of suckers in 2007 folks — we’ve done the Wile-E-Coyote thing since, continuing to pretend that we won’t actually fall having stepped off the cliff.

I’m sorry, but you’re wrong.

Oh this is rich….

Three weeks after European leaders unveiled emergency euro-area funding exceeding the symbolic $1 trillion mark, concerns about Spain’s position have ratcheted the nation’s borrowing costs to the highest levels this year. Crisis-fighting resources will dominate talks at the International Monetary Fund’s spring meeting in Washington from April 20-22.

While the U.S. insists that Europe can overcome the crisis using its own financial firepower, euro-area officials say they’ve done enough to trigger additional global assistance. The urgency was underscored last week as Spanish and Italian yields jumped, challenging assumptions among the region’s leaders that the worst of the fallout was behind them.

But I thought there was no crisis?  That we all took “decisive” and “effective” actions in 2008 and 2009?

Hmmm… you mean that was a lie?

Spain’s 10 year bond is trading near 6%, and Italy is trading near 5.5%.  That’s a problem; Spain is feeling desperate, as one of their economic ministers is now calling for the ECB to buy yet more of it’s trash, er, “debt.”

The real problem that Europe has is the same one we have in the United States – we, and they, are unwilling to fund our government programs with sufficient money in the present tense.

That is we’re all unwilling to come to the public of our respective nations with the open question as to exactly what services we want our governments to provide, and then set tax levels such that they’re paid forin full in the present tense.

But this is exactly what we must do — and what they must do.

This weekend I was at a political event canvassing for Calen Fretts who is running for Congress as a Libertarian.  Our current hurdle is getting on the ballot, which requires petitions.  In the course of gathering them I spoke with a lot of people, and one of them was very focused on foreign policy, hammering on the Iraq war and generally being hostile to Libertarian ideas.

At one point I pointed out that irrespective of what he, or I, might like the fact remained that $750 billion a year (our defense budget) is roughly 1/3rd of all tax revenues that the Federal Government currently receives.  While national defense is certainly one of the Constitutional powers of the Federal Government if you can’t write the check without it bouncing it’s immaterial.  I recognize, for example, that we cannot simply walk off into the sunset on foreign policy as we’ve managed to create for ourselves a world where weneed foreign resources, particularly oil, but this is something we can correct over time.

What we can’t do is continue to believe that we can cut taxes further while increasing spending at the same time.  If we’re going to have lower taxes (and everyone likes lower taxes) then we must also have lower spending.  This isn’t optional — it’s absolutely necessary.

We simply have to have the conversation with the American public in recognition that we either have to cut federal spending by about 50%, double tax receipts or some combination of the two. Either is going to have a significant and inescapable economic impact.

Spain, Italy and the rest of the Euro Zone are in the same box.  None of these nations have actually addressed the funding and spending mismatch that led them into this box and none of them have shown any indication of correcting that error.  Nor have we.

But if we’re going to ever make a serious effort at resolving our debt problem before we play Thelma and Louise, driving straight off the cliff, we must stop with the rhetoric and deal with the mathematics.

Walker was up on CNBS this morning again saying that the problem is not “today” but “tomorrow.”  He’s wrong.  In fact, he’s lying as he knows he’s wrong.  The problems we have today are real, they are emergent, and health care is not a Medicare or Medicaid problem, it is a structural issue in our medical system.

We simply cannot continue to run $1 trillion+ annual deficits.  This has to end now.

In Europe they must also end these imbalances now.

If those problems are resolved then while the short-term economic difficulty will be significant the intermediate and longer-run benefits will be stability and economic prosperity.

If not then the outcome will be ruin.

In that case it is not a matter of if, but when.