FedUpUSA

Archive for the ‘Social Security’ Category

Back on January 5, when we first broke the news that the US debt ceiling has been reached, and breached, yet again, we said “And now the Social Security Fund pillaging begins anew until Congress signs off on the latest interim debt ceiling increase.” Sure enough, operation rape and pillage is a go.

• U.S. SUSPENDS PAYMENTS TO PENSION FUND TO AVOID DEBT CAP BREACH
• GEITHNER INFORMS CONGRESS ON SUSPENSION OF PAYMENTS TO FUND
• GEITHNER SAYS `G’ FUND PARTICIPANTS `UNAFFECTED’ BY SUSPENSION
• GEITHNER SAYS `G’ FUND TO BE MADE WHOLE AFTER DEBT LIMIT RAISED
• GEITHNER: DEBT LIMIT WILL BE INCREASED JAN. 27 UNLESS BLOCKED

In other words: Congress better pass the debt ceiling prontt, or else it will have to explain to government retirees the tens of billions in deficit funds, i.e., marketable debt, already issued will permanently offset the level in G-fund holdings.

Lastly, any comparison to similar acts of commingling performed by other insolvent entities in recent months is purely coincidental and no Obama handlers were thrown in jail as a result of this post.

ZeroHedge

For decades we were warned that when the Baby Boomers started to retire that this country would be facing a retirement crisis of unprecedented magnitude.  Well, that day has arrived ladies and gentlemen.  Back on January 1st, the Baby Boomers began to retire and more than 10,000 of them will be retiring every single day for years to come.  Most of them have not saved up nearly enough money for retirement.  At the same time, private sector pension plans are failing all over the place, hundreds of state and local government pension plans from coast to coast are woefully underfunded, and the Social Security system is on the road to complete and total disaster.  A massive wave of humanity is hitting retirement age at a moment in history when the U.S. economy is coming apart at the seams.  We do not have the resources to keep the promises that we made to the Baby Boomers, and most of them have not made adequate preparations for retirement.  What we have is a gigantic mess on our hands, and millions of Baby Boomers are going to find retirement to be very bitter and very painful.

A lot of younger Americans just assume that Social Security is enough to take care of the needs of elderly Americans.  But that is just not the case.

Have you ever tried to live solely on a Social Security check?

It is not easy.  The truth is that those checks are just not that large.

The following comes directly from the Social Security Administration….

The average monthly Social Security benefit for a retired worker was about $1,177 at the beginning of 2011.

Could you live on less than 300 dollars a week?

And keep in mind that the $1,177 monthly figure is just an average.  Many receive a lot less than that.

In addition, Social Security benefits have been seriously squeezed by inflation in recent years.  The cost of food and other basics has risen briskly and Social Security benefits have not.

Today, many elderly Americans have to make a choice between buying food, heating their homes or buying medicine that they need.  They simply do not have enough money to do all of them.

It would have been nice if all of the Baby Boomers had been busy saving money for retirement all these years, but that just did not happen.  In fact, the Baby Boomers as a group are trillions of dollars short of what they need for retirement.

So why doesn’t the U.S. government step in to help them out?

Well, the reality of the situation is that the U.S. government is flat broke.  The federal government is now over 15 trillion dollars in debt.  During the Obama administration so far, the U.S. government has accumulated more new debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

Lawmakers are already looking at ways to make the Social Security program less costly.  No, the federal government is not going to be riding to the rescue.

In fact, it will be a minor miracle if the Social Security program is able to survive until the end of this decade, and it will be a major miracle if the Social Security program is able to survive until 2030.

As for myself, I do not believe that I will ever see a single penny from Social Security, and many other working age Americans feel the same way.

Retirement is supposed to be a fun time, but sadly most Americans that are approaching retirement age are not going to have any “golden years” to look forward to.

Rather, millions of elderly Americans are going to find the years ahead absolutely agonizing as they struggle just to survive.

The following are 25 bitter and painful facts about the coming Baby Boomer retirement crisis that will blow your mind….

#1 According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

#2 According to a recent poll conducted by Americans for Secure Retirement, 88 percent of all Americans are worried about “maintaining a comfortable standard of living in retirement”.  Last year, that figure was at 73 percent.

#3 A study conducted by Boston College’s Center for Retirement Research has found that American workers are $6.6 trillion short of what they need to retire comfortably.

#4 Today, one out of every six elderly Americans lives below the federal poverty line.

#5 On January 1st, 2011 the very first Baby Boomers started to retire.  For almost the next 20 years, more than 10,000 Baby Boomers will be retiring every single day.

#6 At the moment, only about 13 percent of all Americans are 65 years of age or older.  By 2030, that number will soar to 18 percent.

#7 Right now, there are somewhere around 40 million senior citizens.  By 2050 that number is projected to increase to 89 million.

#8 Back in 1991, half of all American workers planned to retire before they reached the age of 65.  Today, that number has declined to 23 percent.

#9 According to one recent survey, 74 percent of American workers expect to continue working once they are “retired”.

#10 According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work “until they drop”.

#11 A poll conducted by CESI Debt Solutions found that 56 percent of American retirees still had outstanding debts when they retired.

#12 A study by a law professor at the University of Michigan found that Americans that are 55 years of age or older now account for 20 percent of all bankruptcies in the United States.  Back in 2001, they only accounted for 12 percent of all bankruptcies.

#13 Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

#14 What is causing most of these bankruptcies among the elderly?  The number one cause is medical bills.  According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States.  Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.

#15 Public retirement funds all over the United States are woefully underfunded.  For example, it has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of complete collapse.

#16 Most U.S. states have huge pension obligations which threaten to bankrupt them.  For example, pension consultant Girard Miller told California’s Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.  When you break that down, it comes to $22,000 for every single working adult in the state of California.

#17 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management have calculated the combined pension liability for all 50 U.S. states.  What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds.  That is a difference of 3.2 trillion dollars.  So where in the world is all of that extra money going to come from?

#18 According to the Congressional Budget Office, the Social Security system paid out more in benefits than it received in payroll taxes in 2010.  That was not supposed to happen until at least 2016.  Sadly, in the years ahead these “Social Security deficits” are scheduled to become absolutely nightmarish as hordes of Baby Boomers retire.

#19 In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers.  According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.

#20 The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting just last year.

#21 The total cost of just three federal government programs – the Department of Defense, Social Security and Medicare – exceeded the total amount of taxes brought in during fiscal 2010 by 10 billion dollars.  In the years ahead expenses related to Social Security and Medicare are projected to skyrocket dramatically.

#22 The Pension Benefit Guaranty Corporation is the agency of the federal government that pays monthly retirement benefits to hundreds of thousands of retirees that were covered under defined benefit pension plans that failed.  The retirement crisis has barely even begun and the PBGC is already dead broke.  The PBGC says that it ran a deficit of $26 billion during the fiscal year that just ended and that it will probably need a huge bailout from the federal government.

#23 According to a survey by careerbuilder.com, 36 percent of all Americans say that they don’t contribute anything at all to retirement savings.

#24 More than 30 percent of all investors in the United States that are currently in their sixties have more than 80 percent of their 401k plans invested in equities.  So what is going to happen to them if the stock market crashes?

#25 A survey taken earlier this year found that 20 percent of all U.S. workers admitted that they had postponed their planned retirement age at least once during the last 12 months.  Back in 2008, that number was only at 14 percent.

Our politicians should have addressed the retirement crisis decades ago before we got to the point of being in debt up to our eyeballs.

It is being projected that the U.S. national debt will hit 344% of GDP by the year 2050, and the Congressional Budget Office says that U.S. government debt held by the public will reach a staggering 716% of GDP by the year 2080.

Obviously those figures will never be reached because our financial system would totally collapse long before then.

So what do we do?

We have tens of millions of elderly Americans that are completely and totally dependent on Social Security and Medicare, but those programs also threaten to bankrupt us as a nation.

Anyone that believes that there is a “quick fix” to these issues is being naive.

The “supercommittee” was supposed to address this problem, but they failed so spectacularly that they have become a national joke.

Sadly, most of our politicians just keep kicking the can down the road.  They hope that somehow things will just magically “work out”.

Well, the truth is that things are not going to “work out”.  The poverty level among the elderly is going to continue to increase.  Pension plans all over this nation are going to continue to fail in staggering numbers.  Social Security and Medicare are going to bleed more red ink with each passing year.

Something should have been done about this problem a long, long time ago.

But it wasn’t.

This crisis was ignored, dealing with it was put off time after time and all the doomsayers were laughed at.

Now the crisis is here, and we are all going to pay the price.

The Economic Collapse

  We’re all aware (at least those of us who care, and thus are worth two cents) of our ballooning national debt. As of this writing –latest Treasury figures dated Oct. 6 — Total Public Debt stands at $14.836776T dollars. That is, rounded to the nearest million (chump change) 14 trillion, 836 billion, 776 million dollars. That figure is what the (in)famous debt ceiling applies to. Such a sum is hard to visualize, but remember the succession of “-illions” goes by factors of one thousand. A billion is a thousand million, and a trillion is a thousand billion, one million million. An astronomical sum.

But it turns out that Total Public Debt consists of two components. One component is known as “Debt Held by the Public”, which is sort of easy to confuse with “Total Public Debt”, but the two are different things. Debt Held by the Public stands, again as of Oct. 6 at  $10.126447T, 10 trillion, 126 billion, 447 million dollars, again rounded the nearest million. Debt Held by the Public represents “real money” that the federal government has borrowed, the form of Treasury securities, from the “public”, which consists of Americans as well as foreign governments and central banks. All the money we owe China is included in this component.

But what of the rest, the other component, which is known as “Intragovernmental Holdings”, which as of Oct 6. stands at $4.710329T, 4 trillion, 710 billion, 329 million? What is this? Well, it turns out this really something of an accounting scam, something that would make Enron and Bernie Madoff proud. What they did was illegal, however what the governement does is completely legal, because the law not only allows, but creates the whole thing.

Let’s consider a married couple. The husband is a spendthrift ne’er do well whose pockets quickly have holes burned in them by money. He blows everything he makes on booze, strip joints, and similiar. His poor wife works, making a salary of her won, yet she is responsible. She wants to put away savings to handle their retirement as well as their future medical care and the general rainy day that might come. That is, she wants to invest it.

Her husband makes her a deal. “Hey Honey, why don’t you invest your money with me”, he suggests. “I’ll even pay you interest, more interest than you’d make at the bank!”. And so she takes him up on it. She hands her paycheck, less current needs for groceries, and he writes he IOUs. She puts those IOUs in a  “lockbox” and counts those as her nest egg retirement investment. Hubbie just takes the money and blows it on more booze, hookers, and everything else. Every six months, he pays his wife interest just as he promised.

He pays those with more of those IOUs, of course, which the wife dutifully puts in her lockbox. On paper, she’s doing good. Her “investment” with her husband is paying her a nice interest rate and her little “trust fund” in her lockbox is doing well. On paper.

Now, even with his own salary, and his wife’s, the husband is still spending more than he takes in. He runs up the difference on the credit card. Let’s consider the household debt in the situation. The household owes the outside world the credit card balance. But the IOUs in the lockbox are something the husband owes the wife, a type of “intrahousehold debt” we might call it. One part of the household owes the other part.

Now is this arrangement between our husband and wife here worth anything? It’s a scam, a joke, you say, and there’s  no way the wife can consider those IOUs to be worth anything. And that’s true.  The only way the wife can get her money back is from the husband. And where will he get it? He’ll either have to somehow increase his own income or borrow it from the credit cards to pay her back. Are those IOUs any sort of real asset the wife  could sell to someone else for cash? Hell no. No one in their right minds would take those IOUs.

The whole thing is just a little Ponzi scheme the husband is running on his wife, blowing her money and tricking her into thinking it’s an investment. This is what Bernie Madoff did of course.

Who is this couple running this Ponzi finance scheme? Well, they’re relatives of ours, turns out. The husband is an uncle of ours, Uncle Sam to be exact, and the poor naive wife is Social Security, Medicare, military and federal civil service pension funds, and some other stuff.

This is exactly how the “trust funds” of Social Security, Medicare, and the rest are financed. The payroll taxes that come in are put in the general fund and spent, with Uncle Sam writing IOUs to the trust funds for the difference between what they had to pay out and what they took in. He makes interest payments every six months on these IOUs, in the form of yet more IOUs.

This is that intragovernmental debt. It is where the “lockbox” for Social Security and Medicare and the rest all live accounting wise. It is debt one part of the government owes another part. You may protest, surely that can’t be. The trust funds claim they hold US Treasury bonds, the “safest investment in the world”.  Well, they are called Treasury bonds, but a “special” kind, called Government Account Series (GAS).

These GAS bonds are only for the purpose of government accounts, and are non-marketable, which means they can’t be sold on the open market. Just like our wife above can’t sell her pile of IOUs, so Social Security and the other trust funds can’t sell any of their GAS bonds. Thus they are nothing but IOUs as worthless as the sorry husband wrote his wife.

So Debt Held by the Public is like the credit card debt the husband has run up, and Intragovernmental debt is the pile of IOUs he wrote to his wife.

The only way those GAS bonds can be made good is to be redeemed by the US Treasury. But where is it going to get the money? Only by borrowing from the public or raising tax, or both, (or worse printing money to pay for it).

There are no “trust funds”, just a pile of IOUs with fancy names. And the only funding for those trust funds going foward is the federal government’s ability to tax and borrow from the open market.

And incidently, something even more Enronish has been going on with the trust funds the last couple of years. Remember the payroll tax cuts which were part of the various stimulus bills that were supposed to be the medicine our economy needed and which failed miserably? Well, that’s like our sorry husband asking the wife take a pay cut. But he says he’ll make up the difference and pay her back he lost pay. How does he pay her back? Well, as I’m sure you guessed now that you’re wise to the game, he pays her back with more of the same IOUs.

Publius-SC - FedUpUSA

Discussion (registration required to post)

It is one thing (what thing that is we are not sure, but we have heard others say it, so like all good lemmings we will say it too) for Rick Perry to call Social Security a ponzi scheme. After all he is some crazy, foaming in the mouth conservative, as uber-Keynesian liberal Paul Krugman may call him. And that’s fine. What confuses us, however, is why Social Security would be called a ponzi by the same liberal noted previously: none other than Paul Krugman himself.

Exhibit A, from a distant 1997, which perhaps one would have expected to remain buried (source):

 

 Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).

This coming from the same person who a year ago said the following much anticipated truism, and has in the interim become a caricature of himself:

 

 So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.

 It would be easy to dismiss this bait-and-switch as obvious nonsense, except for one thing: many influential people — including Alan Simpson, co-chairman of the president’s deficit commission — are peddling this nonsense.

 And having invented a crisis, what do Social Security’s attackers want to do? They don’t propose cutting benefits to current retirees; invariably the plan is, instead, to cut benefits many years in the future. So think about it this way: In order to avoid the possibility of future benefit cuts, we must cut future benefits. O.K.

 What’s really going on here? Conservatives hate Social Security for ideological reasons: its success undermines their claim that government is always the problem, never the solution. But they receive crucial support from Washington insiders, for whom a declared willingness to cut Social Security has long served as a badge of fiscal seriousness, never mind the arithmetic.

 And neither wing of the anti-Social-Security coalition seems to know or care about the hardship its favorite proposals would cause.

The only question we have for the Nobelist: is some form of affective disorder a necessary and sufficient condition to espouse the virtues of government dumping endless capital in what said Nobelist himself calls a Ponzi scheme, and just how would the overlord, John M. Keynes, fell about this?

h/t John Poehling

ZeroHedge

Grrr….

U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will trim its weekly gain, after President Barack Obama’s $447 billion plan to boost jobs failed to bolster confidence in the world’s largest economy.

….

President Obama channeled the national frustration with the economy that threatens his political standing and challenged the U.S. Congress to pass a $447 billion jobs plan tilted heavily toward the Republican prescription of tax cuts.

The president, speaking before a joint session of Congress, demanded six times that lawmakers act “right away” on a plan that would boost spending on infrastructure, stem teacher layoffs and cut in half the payroll taxes paid by workers and small business owners.

Riiight.  Let’s turn Social Security into even more of a Ponzi scheme (can we stop with the “prepaid” lie when the movement is to cut the payroll tax that you allegedly pay in?) and start talking about how we got here and how we fix the structural problems that led us into this rathole in the first place.

Bloomberg, amazingly, is starting to figure it out and actually put it in print.  In a stunning editorial they said:

Would you give money to a compulsive gambler who refused to kick the habit? In essence, that’s what the world’s biggest banks are asking taxpayers to do.

…

At the same time, bankers are campaigning against regulators’ efforts to address a root cause of the problem: Big banks’ addiction to excessive leverage, or to using borrowed money to boost their shareholders’ returns. In a recent flurry of letters to the Basel Committee on Banking Supervision, which is in the process of setting new rules for the largest global institutions, various banking groups warn that higher capital requirements — tantamount to putting limits on leverage — will reduce credit availability and stunt the economy’s growth.

Did I actually read that?  In Bloomberg?

Wow.

Remember, I’ve been pounding the table on one dollar of capital for years.  It’s the only way to stop this crap, because it forces banks to hold one dollar of actual capital against any unsecured lending, no matter how it’s done.  It does not differentiate between a credit card (unsecured) and an OTC derivative (unsecured); if the position is not secured by a marked-to-market asset that can be seized and liquidated (that is, demonstrably provable value with a clean chain of title) every night, it’s an unsecured loan and must be funded in cash by an investor or through retained earnings.

That ends all systemic risk and it also ends all the threats from the banksters.  It prevents arbitraging (and extorting) governments and citizens, in short.

But what it does not do is prevent the market intermediation function, it does not prevent lending for any purpose (although it will make speculative lending expensive) and it does not prevent the essential payment-clearing process that banks engage in every day – and which is, in fact, essential to modern society.

There is no job growth in America, as I’ve noted, because there is no reason for an entrepreneur to grab for the brass ring.  Capital formation has been destroyed by the banksters and Bernanke.  Until this distortion is ended, and it is clear that doing so will require that Bernanke be removed from office and the banksters stripped of their political power through whatever means are necessary there will be no meaningful entrepreneurship funded with capital formation because there is no capital formation happening.

Borrowing is not the same thing as saving, and funds from borrowing are much less efficient at building sustainable businesses than that formed from capital.

Capital must always come from economic surplus – that is, what you produce in excess of what you consume.  It cannot come from any other place.  Attempting to replace capital formation with lending always fails – not only is there a mathematical problem that precludes this strategy working on a durable basis (the basic law of exponents) such a replacement causes gross misallocations of capital.  Until the people of this nation and indeed all nations tell the banksters to stuff it up their behinds and refuse to accede to their demands and threats, forcing the insolvent out of business as we should have years ago, the economy will not recover.

Not here, not over in Europe, not anywhere.

Wake up America.