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It must be new math......Doctor Dinero's Discussions The local pharmacy ran out of red pills (must have been in high demand for the holidays, or maybe... never mind) allowing me to wake up from my denial state (I knew my wife was popping those pills into my mouth while I slept). Waking up, I turned on the telly, and what do I hear? "Social Security Reform". The US government is going to tinker with the Greatest Ponzi Scheme ever invented? After pinching, hitting, and other self mutilation, I realized that I was not in some sick scheme to get me to admit that the emperor has clothes, that I really was hearing Social Security Reform. Now becoming paranoid, I quickly look at the stock market. It has starting to tank in early January. What better way to prop it up than divert billions from the greedy government dominions to the stock market. Oh but wait, the government is not going to slow its growth or spending, "Steady as she goes". So I read this "piece of legislature" as a prop for the stock market, and a bumper crop of new treasury debt. The question is "How fast they can enact these reforms?" This could be a Texas Hold Em, all in. Now it is up to Easy Al to hold a poker face. The foreign patsies central banksters to fold (print their own currencies and buy US debt to keep interest rates steady and protect the banks) or call (let the rates soar to market rates, somewhere near 30% with today's risks). Someone will call, if not this hand, maybe the next. When they do, they will get an IOU from the US for owning treasury debt. Or maybe an Argentinean solution, "sure I will pay you 20 cents on the dollar, it's your fault for being a stupid lender, I going to use my cash to buy gold, adios..." Oh yeahhh, the title has something to do with New Math (so lets focus, where is that Ritalin, good they are not red). The new math comes when looking at the numbers from the congressional budget office and the US treasury. How can a country claim to have a 220+ Billion budget surplus while issuing 18 Billion additional debt (or a 375 Billion deficit instead of 565 Billion), I am not skilled in this new math, maybe I should re-attend elementary school. Then I read the following from Reuters: "Bush Talks of Crisis to Sell U.S. Retirement Plan" By Donna Smith But Social Security will continue to earn interest income from the U.S. government bonds it holds in the trust fund. In 2028, benefit payments exceed tax revenues and income and the trust fund is projected to be exhausted in 2042, they said. 2028? Not believing someone else's calculations, I downloaded the data from CBO, and curved fitted the data for SS tax revenue, SS benefits, and Medicaid (for you math geeks, I got a 97 to 99 r-squared using exponentials, EXPONENTIALS). So using these exponential formulas, I calculate 2013_ before the plan goes cash flow negative, where the benefits exceed tax revenue as can be seen in the graph below.  By the way, you can't count interest you owe yourself as revenue. That is so ENRONish. In addition, the curves do not take into account the latest increases in spending for Medicaid. That should also shorten the time. As can be seen in the next chart, from 1980s to about 2008 this ratio is fairly flat, then we started down the slope of having more and more retired people to workers. How do I interpret this? 2013 _ is wishful thinking, more like 2012 will be year of cash flow neutral, assuming no recessions and or depressions. Should they divert 2% of SS revenues to the stock market, that date moves to 2009 (just in time for the next President.) However, I think this is just a diversion to change the COLA from being CPI to Wage Inflation based.  From SSA Publication No. 05-10055, ICN 462560, January 2005 But that is not the real crisis. The real crisis is the outstanding FRNs of 703 Billion (currency component of M1) is less than Social Security payments (SS + Medicaid). It would only take a 15% increase (CPI-WI) to send SS cash-flow negative today. Changing the COLA adjustment to wage inflation index (of which we are experiencing wage deflation being represented as stagnant wages) from the CPI will protect the US government from premature Weimar if the Asian countries de-peg their currencies which would cause massive inflation within the US. There can be no arguing, we are going to have a much lower standard of living.  As you can see in the above graph, the US Government changed the CPI index when they started adjusting SS for inflation. That fix is about to bite them and a little change to Wage Inflation is just the ticket to keep the Ponzi Scheme still functioning. Sorry Seniors, but things are going to get much, much worse for you. All this new math is like saying 450 odd some FRNs (OK so I am high today, maybe a hangover of the red pills) equal an ounce of real money, gold, (and lets not forget its cousin silver) instead of its true value 2600+ an ounce of gold. Disclaimer: This is for entertainment purposes only. Not liable for your enjoyment, happiness, or anything else related to you, the reader. If you want real advice, subscribe to John Mackenzie's M2 newsletter.
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Jan
21, 2005