Tuesday, November 23, 2010

Social Security, The Only Solvent US Government Program

11/23/2010 Portland, Oregon – Pop in your mints…
Today we awoke to the possibility of snow in Portland.  Unlike cities who experience snow on a regular basis, Portland is, by choice, utterly and completely defenseless to this winter phenomenon.  We say by choice because the environmental contingent which heavily influences, well, everything around here takes offense to the need to spread salt, chemicals, or simple gravel on the roads to make them passable when snow and ice hit.  The consequence is that the roads turn into a demolition derby of buses with chains and SUVs who have never left pavement let alone faced ice and snow beneath their 16 inch wheels.  Everything that can be delayed (schools, government services, bake sales) is and the city as we know it rests.
The financial markets, however, will not rest so we must continue to explore, pry, expose, and attempt to comprehend the incomprehensible.  On we plod, through rain and snow.  The markets today show no indication of collapse.  Could it be that they missed the Irish taking their bailout?  No, it is right there in the headlines.  What about large banks being $150 BILLION short of capital based on the new requirements that a group of world improvers saw fit to place upon them in Basil, Switzerland not many moons ago?  Not even flinching.  Could it be that the markets are seeing past these seismic events and see calm sailing ahead?
We know better than that!  Our guess is that Ben Bernanke and his "Plunge Protection Team" have their hands firmly on the dials of our key indicators.  How long until the passengers on the USS Dollar realize that they are headed for an outcome less like a Cruise liner in the Caribbean and more like the Titanic or the Perfect Storm?  We offer as proof that Gold and Silver continue to plod higher, indicating all may not be well on the high seas.
But since calm is the word of the day we will cease and desist the scrutiny of the bond markets for the time being.  Instead, we want to pass on an insight that came to us this morning while listening to the radio.  This simple insight is that Social Security, for all of the criticism that it receives, is really one of the only if not the only government program which is self sustaining.  But benefits will run out in 2037, you say?  There is a huge unforeseen demographic shift that will inundate its ability to pay benefits, you might add, as the evidence mounts in favor of reforming or privatizing social security.
But consider the facts.  Social Security has NO authority to borrow.  It is by mandate self funded.  Now, in 2010, the trustees are planning to fix a a problem that its actuaries have pegged to occur in 2037.  What a pristine example of foresight!  Fellow taxpayer, do you have your affairs in order to know how long it will be before you incur a shortfall?  The Social Security trustees at this point have their problem pegged 27 years out.  Needless to say that is plenty of time to react and do something about it.  Our hats are off to the Trustees.  Their biggest problem, it seems, is how to keep the rest of the US government's operations from raiding their coffers!
How much entitlement dead weight can the US "sports car" economy pull???
The fact that Social Security is infallibly managed and funded does help it to avoid ideological criticism, however.  There is a vocal contingent that believes that Social Security or any entitlement has no place in a pure Capitalist system.  It is like hitching a tractor trailer of entitlements to an economy that more resembles a sports car than a vehicle better suited to pull it.  Does that mean that the sports car cannot move with the trailer attached?  The answer, of course, depends upon how much you load the trailer up with entitlements and other dead weight.  Every extra pound will adversely affect the ability of the sports car to maneuver and eventually, if enough weight is added, the car will stop moving completely. 
From a purely Capitalist point of view, Social Security's surplus should be in the hands of productive citizens and not funding idle hands nor the rest of the Federal Government's bumbling attempts at managing internal or external affairs.  Or as we can now, for the time being, refer to it as, "touching everyone's junk."  From the point of view of a "civil" market society, having a publicly funded social welfare program/retirement plan is a no-brainer.
But we will not pass judgment, rather, we leave you with the image of the drivers of the sports car, the entrepreneurs, increasingly frustrated as the sports car's clutch begins to slip and its engine revs to 7000 RPMs trying to pull the ever increasing weight of government entitlements to draw your own conclusions.
Stay Fresh!
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 *See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.