Tag

Ponzi

Oct 29
0

Failure: The Only Option??

By | Commentary

I read The Queen of Obamaland by Pat Buchanan with great interest as he turned his guns on HHS Kathleen Sebelius who’s disastrous rollout of the Obamacare website has caught the attention of many late night comedians. It’s worth a full read….just like everything Pat writes, but here’s the money quote:

In World War II, FDR brought together the men who made things in America,  dollar-a-year industrialists who swiftly took charge and met his immediate  demand for 50,000 planes and 1,600 ships.

They built the most awesome military machine the world had ever seen, arming  12 million Americans, Russia and England as well, and smashing two mighty  empires on opposite sides of the world.

And these men did it in about as long a time as it took Barack Obama’s  regime, captained by Kathleen Sebelius, to flunk a test to create a website.  There is something deeply wrong with our republic.

Doesn’t he have a point? Now…I knew that our government sucked at just about everything it touched….but have we sunk this low…we can’t even build a stinking website…even after spending $600M+. And this is likely just the tip of the iceberg….we know damn well that whatever cost estimates and savings they promised to justify this whole thing will turn out to be disastrously wrong as well.

This is one (of many:)) fundamental reasons I could never be a liberal. You see, the liberals for the most part have their hearts in the right place. They want to eliminate poverty, educate everybody,  make sure everyone has healthcare….essentially just make the world a better place, and I get that. But then…they go completely off course by making a fundamental assumption….that Governmentt has the capacity to accomplish any of these things. It can’t….and it has a documented record of failure in just about everything it touches. And yet…the liberals just can’t give it up. After his failure…nobody on earth would trust Bernie Madoff today with their retirement accounts today….but here are the liberals….”please Uncle Sam…we have this great idea on how to fix healthcare”…”can you take it from  here?”

And it’s not like the Rebublicans are any better….what with the nation building and the department of homeland security ect…

On the same vein of thought…on Meet The Press Sunday, Alex Castellanos-republican strategist made a good point…asking…”name something government can do well”….then went on to name a list of failures…including pointing out that social security was a ponzi scheme…excellent…truth telling on national TV…that never happens.

Enter Neera Tanden-Democrat…who  giddily declared after this bit of truth telling..” I think it’s good to know my republican colleagues don’t like social security and medicare”. That’s it….that’s the only thing she heard.  Hee hee… now i get to bash republicans…for telling the truth. I watched it about five times…and you could see the sparkle in her eye the second the truth slipped out of Alex’s mouth…it kinda made me sick to my stomach.

And you know what…it will work. All you have to do is accuse a candidate of wanting to cut back…even a tiny % of the SS Ponzi scheme…and 60M+ voters will crush whatever political aspirations they may have had….even if they were the best candidate with the best ideas for the long term.

And this truth….more so than anything else…including the $17T of accumulated debt is why I remain convinced that the collapse of this system is inevitable. I will grant the optimists out there that we are not too far gone to fix this country….solutions exist to put us back on the right track to long term prosperity. However….none of them will ever see the light of day…and it’s our own damn fault. For 30 years we as a society have been making piss poor decisions at the ballot boxes, and the result is profound. The country that not so long ago…as Pat said:

“built the most awesome military machine the world had ever seen, arming  12 million Americans, Russia and England as well, and smashing two mighty  empires on opposite sides of the world.”

…is now so friggin incompetent they can’t even build a damn website. In the movie Idiocracy it took 500 years for society to devolve….I’m thinking for us…50 would be a miracle. Democracy…it seems, is simply incapable of fixing this. Thus failure, it would appear is…the only option. With collapse comes the opportunity to rebuild from scratch. Ctrl-Alt-Del

 

Jul 09
0

Proof (well…circumstantial evidence) Social Security Implemented As Stealth Income Tax

By | Commentary

A while back I wrote a post titled Uncle Madoff Sam’s “Social Security Trust Fund” which was a tongue in cheek look at Social Securities Ponzi beginnings… excerpt below

Bernie Madoff Sr. 1935 (BM) : Ok everybody step right up. Have I got a deal for you today!! All you have to do is give me 15% of your paycheck from the day you turn 18 until the day you turn 62, 65, 67, 70?? In exchange for this modest contribution, I will, at my sole discretion, give you a meager monthly benefit until the day you die.

To back up a bit, it has been a hypothesis of mine that Social Security was invented not as a program to help the all the poor widows living in poverty like the history books say, but instead, as a disguise to pass a broad income tax that would (at least temporarily) bring in far more revenue than outlays, allowing the government to spend that revenue wherever they wanted, leaving future elected officials to worry about the promises being made.

The story line kind of fits….right in the middle of the depression, people are generally unhappy with the government and probably not in the mood for a tax hike. However, revenues are depressed, and outlays are surging….what to do? Create a fake program to help widows and the elderly and a broad based tax to pay for it. Then…set the retirement age so high…most people will die before they are old enough to collect and voila!! It’s not like the public could download the data into excel and crunch the numbers themselves back then, who was gonna know the difference?

So that has been my hypothesis, but I never had any raw data to correlate with it…until now. Over at SSA.gov I found a neat little table showing Social Security’s  annual cash inflows and outflows…all the way back to 1937. Then, at findthedata.org I found the total US government historical revenues and outlays. Put them together, and the evidence is pretty convincing.

First, lets set the backdrop…From 1920 to 1930, the government ran 11 consecutive surpluses averaging $4.3B in revenues and $3.5B in outlays. Just scaling that up to 2012, that would have been like pulling in $4.7T of revenues on 3.9T of outlays…good for a $900B annual surplus….instead of the $1.1T deficit we actually recorded. Then…just do that 11 years in a row.

Then…the Depression hits. Revenues fall more than half from $4.1B in 2030 to $2.0B in 2032. Outlays…$3.3B in 2030 grow 40% to 4.7B by 2032, on their way to 8.2B in 1936. All of a sudden, after more than a decade of healthy surpluses, the government is spending more than twice what it brings in. By the end of 1934, the surpluses of 1920-1930 have been more than wiped out, with nothing but huge deficits on the horizon. They can only issue so much debt (Quantitative Easing hadn’t been invented yet)…they desperately need a new revenue stream, but raising taxes on a pissed off population doesn’t always end well. Enter Social Security. Passed in 1935….implemented in 1937.

So…anyone want to guess what the payout in year one was? Today it’s roughly 1:1. in 1937, according to the SSA, the SS tax brought in $737M of revenue..a full 14% of the federal government’s $5.4B total revenues in 1937. That would be equivalent to today, a $420B per year tax hike. Does anyone think Obama could get that passed? Total Social Security outlays that year… $1M. That’s right…they brought in 737M, and paid out $1M.

Ok…maybe it was just a fluke, maybe you had to wait a year or something, and Y1 only had admin expenses. Let’s look at Y2. $10M paid out on $375M of revenues…2.3% payout. Between 1937 and 1950, SS brought in $18.1B of revenues, and paid out $4.4B…paying out less than 25% of revenues. Not exactly what you expect from a Ponzi pay as you go program to help widows. No…Social security was designed from the start to be a broad based income tax to fund general government, and on the side (as a cover)… they would use a very small % of proceeds to take care of the few who managed to live to retirement age and fill out the right paperwork (typically before dying a few months later)

After a great start… by 1957 (Damn you FDR!!!), the math was starting to catch up and Social Security was running a deficit. And so it started. Taxes were raised… problem solved for a few years, until the math caught up again. Rinse, repeat, and here we are again… What will we do with the “Little Ponzi Scheme That Could”?

Hell if I know!! How do you tell 40M voting seniors and 60M  near retirement Boomers they’ve been paying into a Ponzi scheme 10,000X bigger than Bernie Madoff’s for their entire lives. The money is gone, and the only way to continue it is to screw over the younger generation even more than they already did with Obamacare. Also…they(the young) are young and stupid…you are old and frail…. (so it’s even right 🙂 ) I don’t know how it ends, but I am sure it’s gonna be bad for someone.

Jun 27
0

Social Security-Annual Change In Retired Workers

By | Commentary

I know it was just yesterday I did a post on Social Security. Today…the SSA released  the June updates…among other things revealing that the number of people in the Retired Worker program increased  97k to 37.4M. This is not unexpected, though there is seasonality involved (more people seem to retire in Jan-Feb) 100k per month in additions is about where we are…though the trend is headed up. Just for fun…I charted the YOY additions (which eliminates the seasonality…and it shows a very interesting picture.

06-26-Social Security Beneficiaries

We start all the way back in 1995 adding about 350k people to the SS rolls a year. It moves around between  a 200 and 400k pace before spiking right around the dotcom  bust. After that it drops back around 350k before heading steadily up to about 600k per year in June 2008. Then…it takes off like a rocket topping out in December 2009 at an over 1.2M rate before declining back to about 1M at the end of 2011. Since then, we have seen a steady increase in the rate…likely driven by the demographics of Boomer retirement.

So the question is….what will this chart look like at the end of 2015? As we chug along in 2013 with a not so terrible economy, we are adding to the program at record rates and the demographics only get worse from here. Even a mild recession could cause a huge spike in early retirement…so just as revenues are being squeezed, we would start adding huge numbers to the Social security program. Just some quick math, adding 1.2M retirees, at $1,267 per month is about $18B per year. (I know yesterday we said $60B…that’s the entire program…not just retirees, and it includes the annual COLA on the entire population.) Each retiree… assuming the same $1267 payment and 20 years on the program….will draw in $304k of payments…ignoring inflation/COLA ect…

So… lets go out on a limb, and assume that of the current population of 37.4M, the average life expectancy is 13 years. (wild ass guess…got some 62 year olds and some 95 year olds). Pencil that out, and if we eliminated SS (retirement only) tomorrow for everyone not on it….we would still be on the hook for $7.4T…roughly (still ignoring inflation).Someday I’ll add in the rest of the population. But as we know…it won’t be eliminated….and there are 60M boomers waiting in the wings.

 

Jun 27
0

Did Bernanke Really Lose $151B???

By | Commentary

I read Bernanke’s bond losses: $151 billion plus over at money.com with great interest. It has a sensational title, but ultimately comes clean with a solid conclusion…these are just paper losses. It’s a good article…just make sure you read it all the way through:)

So…for a primer, here is how it all works. First, the Fed, using it’s magic wand, creates new/fake money. Then, they go out into the market, and use that money to purchase bonds… $1.9T of treasuries and $1.1T of mortgage bonds according to the article. This is more or less “quantitative easing”

So say I’m a saver, and I just purchased a shiny new $100 30 year treasury bond with a 2% yield. I paid $100, and am really looking forward to getting my $1 check in the mail every six months. Then I get a call from Uncle Ben (Bernanke). “Say….if you want to sell me that bond…I’d be happy to buy it for $101”. So I say ok….take my $1 gain, and replace it with another newly issued bond…this time at 1.99%. Rinse Repeat a few million times. Now…of course Ben’s not really going to call me up with a $1 treat….but his banking buddies…you bet!!

So now Ben has managed to take his imaginary money and push it into the real economy…lowering rates, making his banking buddies rich…maybe even creating a job or two for the Bugatti plant.

Every six months, Treasury cuts him a check for $1…he pays his staff, and sends the rest right back to the federal coffers….where they book it as revenue under “Federal Reserve Earnings”

Got that? Federal reserve creates imaginary money and uses it to finance the federal government (after running it through a third party),. Then, the federal government sends the Fed their interest due….and the Fed turns right around and sends it back as revenue. Hooray for government accounting!!

So, lets just cut through the crap….what is really happening is the Fed is printing money and using it to finance the deficit and lower the interest rates paid by the government. The end.

Moving on….What has happened recently is that interest rates have risen on the fear that the Fed will not only stop the money printing, but also start selling the $1.9T they have accumulated. The problem, of course, is…who has $1.9T to lend to Uncle Sam?? Not me…not for that deadbeat, and surely not at 2%!!

So now Ben has my old $100 30 year bond paying $2 per year. but nobody is willing to pay him the $101 he paid, or even $100, or $98 because I can buy a brand new one paying say $3 of interest per year….for $100. In order to get the same 3% yield I could get with a new bond….all I am willing to pay for the old bond is $67….good for a $34 loss if Ben wants to sell it back to me. Obviously, I more or less made up the numbers for simplicity and to make a point, but these mechanics are how the authors of the story came up with the $151B paper loss. I’m sure their math is right, but as the article mentions, these are paper only losses, and the Fed doesn’t have to actually recognize them until they sell their $101 bond for $67. They could hold them all to maturity and never book a loss. Now, I have a lot of problems with this entire program, but not with this.

Say I agree to loan a friend $100 at 5%. A week later, interest rates have doubled to 10%. While one could argue that had I waited a week I would have got a better rate and made more money….I shouldn’t have to write down the value of an asset just because I  kinda sorta maybe missed out on a higher rate. If rates drop, I shouldn’t write up the value either. I understand the arguments for….just the very idea of constantly marking assets up and down based on market whims kinda grinds at my accounting core….which yearns for stability. If my company purchases a work truck for 40k….and a shortage of trucks creates a surge in the market value of trucks….doubling it to $80k….I don’t write the value up and recognize a $40k gain….I recognize the gain or loss only if I actually sell the vehicle.

Moving on again…I know this is getting long. How does all this affect the deficit. First, QE enables the deficit…making the money available in the first place, at a lower  (manipulated)interest rate, and even lower rate still once you net out the interest paid to the fed and remitted back….and that’s the part I want to finish on. Looking Back to 2007, the fed was contributing about $30B per year to federal coffers. This spiked all the way to an $87B per year rate by mid 2011, but has since slid down a bit to about $78B… as revenue, this is a direct reduction in the deficit…if it went away tomorrow, our annual deficit over the next 12 months would be $78B higher.

This, it seems to me, is the risk to the cash deficit. First…If these losses are recognized…even if over many years, one would think that this would result in a further decrease to these payments. Say they dropped $50B….that’s a new $50B hole….in perpetuity. Second…even if there were no losses…should the Fed ever start selling these and winding down their $3T portfolio…that would slow the payments anyway…probably back down to the $30B or so we saw back in 2007….and that is ignoring any losses they incurred along the way.

In my own forecast, I have this revenue continuing indefinitely, growing at a 3% pace. from 2014 on. I have it there because I do not believe at this time that the fed can ever unwind it’s $3T portfolio of imaginary money without blowing up the entire economy….in fact it will probably continue to grow, since there is nobody else with the ability to absorb the $12T or so of additional debt the US will need to issue over the next 10 years (assuming we make it that far). So…while I acknowledge the “revenue” associated with these cash payments from the Fed now appear to be in Jeopardy, I am not quite convinced the Fed can or will ever actually start unloading it’s $3T portfolio. That said…I’ll keep watching because you never know when something crazy might happen.

Apr 16
0

Social Security: Crappy Deal…Getting Worse

By | Commentary
CNN MONEY reports
“Up until now, Social Security has been a windfall for many retirees: They collected far more in benefits than they shelled out in taxes.
That’s changing. Many of those retiring will have paid more into the coveted entitlement program than they will get back.”

and

“The imbalance will get more pronounced for future generations of retirees. Couples now in their early 40s will have forked over $808,000 in Social Security taxes by the time they retire, but get back only $703,000 in benefits.”
Let me translate this…basically, the Ponzi scheme that is Social Security, now 78 years old, is now in its death throws. I’m not predicting it will actually end anytime soon, but this is definitely the beginning of the end. Someday, the young will begin questioning why they are paying so much and getting so little and revolt…or, maybe they won’t and it will simply go bust because the math dictates that it will.
Just a quick thought before I forget…what does it say about our society…that rather than taking personal responsibility for our own retirement, and as a backup depending on our family units..(kids, grandkids, nieces nephews siblings ect..). we have instead chosen to entrust our livelihood in old age to universally despised politicians who usually poll somewhere around 20% or so. That’s pretty messed up….just sayin. What the hell are we thinking?
Moving on to the numbers…I’m pretty sure it is actually way worse than what this report suggests because they more or less ignore the opportunity cost of holding on to your own money. So let’s look at a person who makes $50k per year He pays 6.2% as does his employer….don’t be fooled by Uncle Sam’s accounting funhouse.. you pay for both in the form of lower wages. So our average wage earner pays $6200 per year in Social Security Taxes, from 22 until he retires at 67. For simplicity, let’s ignore inflation…in his wages, and in his payout…they should more or less wipe each other out anyway.
So over this persons 45 year career, he pays a total of $279k into the program. When he hits 67, he is now eligible for ~14k per year….for the rest of his life. If he dies at 70….obviously this was a really crappy deal. If he makes it to 87, he more or less breaks even…that is…he could have literally put $6200 under the mattress (or maybe in a non-Cypress bank account) for 45 years and done just about as well as social security. If you happen to live longer than 87…still ignoring any other investment options you could have done with that $6200/year…maybe you start to get more than you paid in.
Yes…the math is terrible idea for just about everybody…which of course is why they have to force you to participate. Now, imagine if our worker, rather than stuffing that money in a mattress, decided to instead use that money to pay off his mortgage early. So, at 22, he decides to purchase a house for $125k(2.5x his annual income) with a 5% 30 year mortgage. His monthly payment is $671, which he makes, plus $6200 per year of extra payments. By the middle of year 12, his house is paid for…completely. He saves about $80k in interest, has a paid off house at 33, and now, has ($671*12+6200) over $14k per year…which he can now start stuffing under his mattress. If he does this for the next 18.5 years (when his mortgage would have ended), then proceeds to only save the 6200 per year until he is 67, he will have about 360k under his mattress, which would fund him at social security level payments until he was almost 93.
And remember, this is assuming all he ever did was pay off his mortgage early, and stuff the rest of the money under his mattress. No stocks, bonds, or even cd’s and saving accounts in this portfolio. So one wonders why this program exists at all. I touched on that a bit in Uncle Madoff Sam’s Trust Fund. Basically, I believe the program was created as an excuse to create a new source of government revenue. It gave them the ability to tax a broad base at a relatively low rate…in exchange for the promise to take care of you when you got old. Of course, back then, you were probably dead before you hit 60…and if you did happen to make it to 60, you were lucky to have a few years left. So of course government pocketed the taxes, and was happy to pay out a few $ here and there to those who managed to live long enough to “retire.” Social Security became a huge cash cow…and continued to be until just recently. By the end of this decade, it will instead be a huge cash drain.
This huge sham of a program simply needs to be scrapped, perhaps in a phased manner, and responsibility for retirement needs to be shifted back to individuals and their families. Problem Solved. In the meantime…the only thing for certain is that there will be pain.