Sunday, September 23, 2012
The Federal Reserve Is Systematically Destroying Social Security...
...And The Retirement Plans Of Millions Of Americans
Last week the mainstream media hailed QE3 as the "quick fix" that the U.S. economy desperately needs, but the truth is that the policies that the Federal Reserve is pursuing are going to be absolutely devastating for our senior citizens.By keeping interest rates at exceptionally low levels, the Federal Reserve is absolutely crushing savers and is systematically destroying Social Security.
Meanwhile, the inflation that QE3 will cause is going to be absolutely crippling for the millions upon millions of retired Americans that are on a fixed income. Sadly, most elderly Americans have no idea what the Federal Reserve is doing to their financial futures.
Most Americans that are approaching retirement age have not adequately saved for retirement, and the Social Security system that they are depending on is going to completely and totally collapse in the coming years. Right now, approximately 56 million Americans are collecting Social Security benefits. By 2035, that number is projected to grow to a whopping 91 million.
By law, the Social Security trust fund must be invested in U.S. government securities. But thanks to the low interest rate policies of the Federal Reserve, the average interest rate on those securities just keeps dropping and dropping. The trustees of the Social Security system had projected that the Social Security trust fund would be completely gone by 2033, but because of the Fed policy of keeping interest rates exceptionally low for the foreseeable future it is now being projected by some analysts that Social Security will be bankrupt by 2023.
Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years. Yes, you read that correctly. The collapse of Social Security is inevitable, and the foolish policies of the Federal Reserve are going to make that collapse happen much more rapidly.
The only way that the Social Security system is going to be able to stay solvent is for the Social Security trust fund to earn a healthy level of interest.
By law, all money deposited in the Social Security trust fund must be invested in U.S. government securities. The following is from the official website of the Social Security Administration....
By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are "special issues" of the United States Treasury. Such securities are available only to the trust funds.
In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.So in order for the Social Security Ponzi scheme to work, those investments in government securities need to produce healthy returns.
Unfortunately, the ultra-low interest rate policy of the Federal Reserve is making this impossible.
The average rate of interest earned by the Social Security trust fund has declined from 6.1 percent in January 2003 to 3.9 percent today, and it is going to continue to go even lower as long as the Fed continues to keep interest rates super low.
A recent article by Bruce Krasting detailed how this works. Just check out the following example....
$135 billion of old bonds matured this year. This money was rolled over into new bonds with a yield of only 1.375%. The average yield on the maturing securities was 5.64%. The drop in yield on the new securities lowers SSA’s income by $5.7B annually. Over the fifteen year term of the investments, that comes to a lumpy $86 billion.So what happens when the Social Security trust fund runs dry?
As Bruce Krasting also noted, all Social Security payments would immediately be cut by 25 percent.....
Anyone who is 55 or older should be worried about this. Based on current law, all SS benefit payments must be cut by (approximately) 25% when the TF is exhausted. This will affect 72 million people. The economic consequences will be severe.In other words, it would be a complete and total nightmare.
Sadly, the truth is that the Social Security trust fund might not even make it into the next decade. Most Social Security trust fund projections assume that there will be no recessions and that there will be a very healthy rate of growth for the U.S. economy over the next decade.
So what happens if we have another major recession or worse?
And most Americans know that something is up with Social Security. According to a Gallup survey, 67 percent of all Americans believe that there will be a Social Security crisis within 10 years.
Part of the problem is that there are way too many people retiring and not nearly enough workers to support them.
Back in 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. But now things are much different. 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. More>> The Federal Reserve Is Systematically Destroying Social Security And The Retirement Plans Of Millions Of Americans
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Low-wage work force grows 30% as the number of jobs shrinks
BY FRANCINE KNOWLES Business Reporter fknowles@suntimes.com September 26, 2012 1:04AM
Amie Crawford, 56 years old, holds an associate degree in interior design, and has previously worked in that capacity making $50,000 a year. Now she cannot find a job in that field and makes $8.25 an hour at a quick service restaurant. | Al Podgorski~Chicago Sun-Times
Updated: September 26, 2012 10:28AM
Low-wage workers in Chicago are better educated, older and rely more on that income these days to meet basic needs than 10 years ago.
And there are substantially more of them.
That’s according to a new report released by Chicago-based Women Employed and Action Now Institute that shows nearly one in six low-wage workers here last year held a college degree.
The report, authored by Marc Doussard, assistant professor in the University of Illinois at Urbana-Champaign’s Department of Urban and Regional Planning, defines low-wage workers as those making $12 an hour or less.
The report revealed the share of payroll employees ages 18 to 64 working in low-wage jobs rose from 23.8 percent in 2011 to 31.2 percent last year. That’s a more than a 30 percent rise in the proportion of such workers.
Meanwhile the share of households with a low-wage earner that got all income from low-wage earnings rose from 45.7 percent to 56.7 percent. That’s evidence more people are relying more on those dollars to meet basic needs rather than for disposable income.
The report is “compelling evidence that as the number of jobs shrinks, people are forced to chase lower and lower paying jobs,” Doussard said. “I think this is a wake up call, and I think we need to acknowledge that low-wage jobs used to be the exception to the rule of an economy that produced a lot of mid- and higher-wage job opportunities. Increasingly low-wage jobs are the rule. This is not something that happens on the margin of the economy.”
He added while the Great Recession has contributed to more low-pay jobs, it’s the continuation of a trend.
“A lot of jobs were lost in the recession, and when you have more people chasing fewer jobs, people are forced to settle for lower-wage work,” he said. “But if you look at the business cycle before the recession from 2001 through 2007, that was also characterized by really anemic job growth.”
The report showed that the percent of low-wage workers age 30 and older rose from 54 percent in 2001 to 57.4 percent last year. And last year only 6 percent of such workers were under age 20, compared with nearly 11 percent in 2001.
“I think people often think that low-wage workers are teenagers or they’re just in the low-wage labor force for a short time, and then they’ll move on to something else or that perhaps they have very low educational levels,” said Anne Ladky, executive director of Women Employed. “There’s a lot of mythology out there about low-wage workers. We feel it’s important to get the facts out there and help people understand the magnitude of the problem and how many adults are struggling making $12 an hour or less.”
Amie Crawford and Ricardo Hardin are among Chicagoans struggling in such low-wage jobs. Hardin, who holds a bachelor’s degree in business management and an associates in criminal justice, has only been able to land a job as a shoe salesman making $8.25 an hour, he said.
“I’m having a hard time keeping afloat,” said Hardin, age 30. “It’s rough. I met a couple of college people besides myself with degrees on my job.
“I had great expectations. I thought I would be able with my degree to at least make anywhere from $45,000 to $50,000 a year and I wouldn’t have to worry about making ends meet. At this point it’s not working as I thought it would be.”
Crawford worked 35 years as an interior designer, where her salary in recent years was $50,000 a year. She moved to Chicago nearly a year ago after her husband moved here and she thought she’d be able to find a job in her field making a similar salary. But she’s since separated from her husband, and after months of looking for work, she was only able to land a job making $8.25 an hour at a quick-service restaurant in the Loop.
“The biggest impact it’s having is I’m having to draw from my retirement savings to make ends meet on a no-frills budget,” and that’s something that she can’t do indefinitely, said Crawford. “If my situation doesn’t change, I’ll have to move and maybe live with my sister. The prospects aren’t good if something doesn’t change.
“I think people think that people that work in {low-wage} jobs, that that’s their choice, and if they wanted to do something else to make more money or get a better job, they could just do that, and that’s certainly not the reality.”
Among steps the report recommends policymakers take to address the problem are raising the state’s minimum wage, which is currently $8.25 an hour, and adopting living-wage ordinances. The report adds “legislation that strengthens collective bargaining rights, paid sick time, enforcement of anti-discrimination and fair labor standards laws and efforts by employers to improve scheduling and promote training and mobility... are also crucial.
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September 26, 2012 By The Doc
Submitted by SD Contributor AGXIIK:
Silverdoctors
As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.
I have noticed two disturbing matters that will most certainly come as a result of the Fed MBS program.
1. The funds from the Fed purchases will rotate to the Too Big To Fail Banks. This debt is already junk bond status due to the nature of the underwater mortgages and delinquencies, hence the reason for the new Fed goon Squad going after borrowers.
This debt will be as bad or worse than the debt of Greece, Spain and Italy, rated CCC-
2. The banks receiving these funds will rotate the money immediately into short term treasury securities that will be priced at NIRP. the reason for that follows:
3. As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy. This will be a bank run much larger that the Euro banks flight to safety.
4. The Social Security Trust fund must make at least 5-6% return to maintain its balance and provide income to the SS recipients. The TF is still guaranteed to go bankrupt by 2033, 21 years from now. The TF is required by law to invest in Treasury bonds. The actuarial problem now facing the TF is that they will be rolling old bonds yielding 5.6% into a yield pool averaging 1.4%, a 75% drop in income. This dramatic yield drop coupled with a 60% increase in SS recipients from 50 million to 91 million in the next 10 years will assure the TF will go bankrupt in about 10 years.
This irreducible math is going to prove an insurmountable obstacle to those who are recently retired, have long live genes or plan to retire in the next 10 years. If the SS TF goes bankrupt then benefits will be cut by 25% . Inflation adjustments were never able to front run the lost in income. The inflation rate of 8% today and 15% tomorrow will destroy the senior investment pool.
Another few unintended consequences of QE 3. Thanks Ben. May you rot in hell!
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I can’t say as I’m surprised by the announcement late Friday that lobbyists representing JP Morgan, Goldman Sachs, and Morgan Stanley, among others, had successfully obtained a judgement quashing the proposed position limits on speculative traders in commodities.
According to Bloomberg:
“U.S. District Judge Robert Wilkins in Washington today ruled that the 2010 Dodd-Frank Act is unclear as to whether the agency was ordered by Congress to cap the number of contracts a trader can have in oil, natural gas and other commodities without first assessing whether the rule was necessary and appropriate.
“Although the court does not foreclose the possibility that the CFTC could, in the exercise of its discretion, determine that it should impose position limits without a finding of necessity and appropriateness, it is not plain and clear that the statute requires this result,” the judge said in his 43-page ruling.
The International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association sued the commission, arguing that the CFTC never studied whether the regulation was “necessary and appropriate” or quantified the costs tied to implementing the rule. The groups represent banks and asset managers including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley. (MS)
The message has been sent to the primary manipulative forces in the markets for commodities: “You may continue to influence prices contrary to the interest of the global economy at will.”
The immediate peril as a result of this ruling, is that the gold and silver bull trends revived by the unlimited capital fabrication now underway will be teed up for another huge short that will send the prices tumbling whenever the colluding entities decide the time is ripe.
As Bart Chilton, one of the CFTC commissioners stated in response, “There’s no question that huge individual trader positions have the potential to influence prices in a way that hurts legitimate hedgers and ultimately consumers.”
The average investor and even the principles of investment banks are challenged by what they view as a complex market, and who are easily persuaded to dismiss the evidence. But the new ruling is a re-enforcement of the conditions that allow such manipulation to persist.
It is unfathomable to thinking individuals how the complacency is so ubiquitous.
Its not a simple concept to understand. Absent position limits, futures and forwards contract originators can create as many contracts as they can find buyers for to sell or buy gold at a fixed price in the future.
In a properly regulated market, (and by the simple logic of supply and demand economics) it would either be a) required that the originator of a forward sale actually have the commodity on hand to sell, or b) that the buyer of a forward sale actually take delivery.
This would imply that there could not be contracts issued representative of more gold, silver, or oil than is readily available for delivery i.e. not more than is produced.
The opposite is the case now, and looks like it will be going forward, thanks to the absence of position limits. With market participants able to create as much apparent and artificial demand and/or supply as they like, the prices of commodities are at the mercy, in large part, of the market participants. And, as we’ve seen by the recent LIBOR scandal, banks do not act in the interests of their clients, or the governments who make their larceny possible, or the general public.
Furthermore, without legislation to force reconciliation of dark market pools, where all kinds of commodities and other derivative instruments are traded on an unregulated basis in an invisible market, the massive nominal value of the entire derivatives market, estimated to be in excess of $600 trillion, calls into question the ability of regulators to protect the interest of the broader financial system against reckless betting.
With the death of the position limits rule, one must question the likelihood that other Dodd-Frank legislation will get shot down as a result of lobbying against it in the courts.
Businessweek reports that “Starting next year, new rules will force banks, hedge funds, and other traders to back up more of their bets in the $648 trillion derivatives market by posting collateral. While the rules are designed to prevent another financial meltdown, a shortage of Treasury bonds and other top-rated debt to use as collateral may undermine the effort to make the system safer.”
This rule will no doubt also see challenges from lobby groups backed by market participants. The incremental dilution of the Dodd-Frank act is a growing catalyst for more financial calamity.
If the rule stands, the stage is set for the necessity to fabricate more capital, to create enough “top rated” debt instruments to act as collateral in the grand derivatives casino. If it doesn’t get cancelled by a complicit court.