Posts Tagged ‘Medicare’
By Greg Hunter’s
June 8, 2011
I have been saying repeatedly that the one thing you can count on is inflation. If you take housing out of the picture, that is exactly what we have been getting. The Fed wants inflation and loathes deflation. Ben Bernanke and other Fed officials have consistently said they want to support “asset prices.” In an October statement from the Federal Reserve Bank of New York, it attempted to explain its bloated balance sheet and explain why it was buying government bonds and mortgage-backed securities. The Fed said in part, “Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be.” (Click here to read the entire Fed statement from October 2010.)
According to financial expert James Rickards, the Federal Reserve is playing an inflation game called “financial repression.” The goal is to get the U.S. out from under at least $77 trillion in debt and future liabilities. The Fed would like to cut the deficit in half in 10 years. How do you do that without actually cutting anything? Rickards said in a recent interview on King World News, “The answer is 4% inflation. It doesn’t have to be that high, it just has to be persistent. It’s like holding an ice cube in your hand. It just melts away. Well that’s what the Fed is doing, and that’s what financial repression is all about.” (Click here for the complete King World News interview with Mr. Rickards.) (Click here for James Rickards’ bio.)
In simple terms, in order for this to work, the Fed needs both inflation and growth. This has been implemented in the past, and a great example is the post WWII economy. There was growth because the U.S. was helping to rebuild the world after the carnage in Europe and the South Pacific. There was also some inflation, but not so much that would alarm the public because back then, everyone had a job and wages rose. By the 60’s, the debt overhang from the war was largely in check.
Rickards says the big problem now is we are not getting the growth or the inflation that is necessary to make the Feds financial repression scheme work. I know what some of you are saying right now, “What do you mean there is no inflation? What about food and energy?” I thought the same thing, and I emailed Mr. Rickards to explain what he meant. Here’s Mr. Rickards’ reply: “I understand the price increases in food and energy, however, I used the Fed’s preferred definitions of inflation (core CPI, CPI and the PCE price deflators) all of which are tame. I did this because financial repression is a Fed policy so if you want to understand it through their eyes, you need to use their definitions for analytic purposes. The fact is TIPS spreads to nominal yields are collapsing and inflationary expectations are coming down. So, regardless of what you and I think of QE, the Fed is not seeing anything that would cause it to back off.” In the Fed’s eye, we are not really getting inflation. So, as Rickards says, the Fed is not going to “back off.”
Remember, housing prices are off 4% in the first quarter alone, but that is not the figure used in the consumer price index (CPI). It uses rental equivalents, not actual home prices. Rickards told me if home prices were used instead of rents, the CPI would probably show “deflation.” The Fed is terrified of that and wants home prices to go up, not down. This will keep the trillions of dollars of mortgage-backed securities from becoming worth less than they already are. So, it looks like the Fed will continue suppressing mortgage interest rates and keep holding them artificially down to around 5%. The Fed wants higher housing prices, but what it is getting are higher food and energy prices. This is a huge problem for the Fed’s financial repression plan because the public cannot become alarmed and outraged over inflation.
Rickards gave five reasons why, this time around, financial repression will not work in the long term: 1) There is no growth. 2) There is not enough inflation (according to the Fed.) 3) The debt, this time, is “huge.” After WWII, there was 100% debt to GDP ratio. Rickards says, “Today the Debt to GDP is six to seven hundred percent.” According to a recent Chicago Sun-Times article, the official national debt and liabilities such as Medicare and Medicaid,“. . . now stands at over $77 trillion — and counting!” (Click here to read the complete Sun-Times post.) This figure does not include other government liabilities such as Fannie, Freddie, FHA and FDIC. By the way, last weekend, the FDIC closed the 45th bank of the year. I see no end in sight. 4) Hostile creditors, such as China, are no longer keen on buying U.S. debt. CNSNews.com reported last week, “China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.” (Click here for the complete CNSNews.com story.) 5) Rickards says, “Financial repression only works if people cannot own gold.” Today, people can and are buying the yellow metal. Rickards sees gold, silver and other tangible assets as a way to preserve wealth as opposed to more traditional assets such as cash and Treasury bonds. Rickards sees a pattern of “higher highs and higher lows” in the gold market for some time to come. He thinks financial repression will work in the short term, but in the longer term, it will fail. He says the Fed can “keep a lid on it” until 2013. After that, he says, “there could be some kind of crack-up” in the economy.
Read the entire article HERE.
May 11, 2011
How would you react if Sam, your financial advisor, came to you with a strained smile stretched across his chubby cheeks and said, “Remember that money you asked me to invest?”—you had invested $100,000 with him to build your retirement—“Well, umm…I don’t have it anymore. I gave it to someone else to make good on a promise.”
You almost lunge for him but for his placating hand gestures. “But it’s all under control,” he insists. “All I need from you is a couple hundred thousand more to make good on another promise. I am a man of my word, after all. That’s why you can trust me. I promise that I’ll pay you back, with interest of course.”
No doubt you refuse his demands, file a lawsuit for fraud and report him to the authorities, probably landing him behind bars to share the fate of Bernard Madoff and Charles Ponzi who gave name to his scheme. Your anger is justified. Even with the lawsuit, you never actually recover all of your money. Sam was running a pyramid scheme—taking money from one person to fund the “investment” of the first, and then taking money from another to fund the investment of the second, and so on—which meant there were many others duped by Sam, leaving not enough money to go around.
But relax. What has actually happened to you is far, far worse. Your retirement financial advisor is not your buddy Sam; he is your Uncle Sam, and the program is called Social Security. Our collective investment in Social Security isn’t just a few hundred thousand dollars; it’s trillions. Your money is not being used to fund your own retirement; it is being use to fund someone else’s. Worst of all, there is no refusing Uncle Sam’s benefaction. It’s a Ponzi scheme with a gun to your head.
Recent events do not inspire confidence that the pyramid will survive long enough for us to collect. Uncle Sam is now asking us to give him more money. He wants to raise the federal government’s debt ceiling to avoid a default and keep this charade going. Just last year Congress raised the debt ceiling from the already high $12.4 trillion to a whopping $14.3 trillion. Now we are bumping against the ceiling again, with debt approaching nearly 100% of 2010 GDP.
Congress is in the midst of debating another increase to the debt ceiling and will need to reach a decision soon. If the debt ceiling is raised, the pyramid scheme becomes another generation’s problem. If the debt ceiling is not raised, then the pyramid scheme collapses and forces us to make hard decisions. These hard decisions have been foregone for too long. Leaving the debt ceiling in place is the right thing to do, so that Social Security, the financial pink elephant in the room, can finally be addressed. For better or worse, we have inherited this Ponzi scheme. The question now is whether we are going to continue to perpetuate it. Ours can be the principled generation that finally says no.
Rather than forcing everyone to keep and lose a large portion of their retirement money in a Ponzi scheme, we would all be much better off planning for our own retirements through private investment and insurance plans that follow transparent and legal accounting rules. When Texas allowed for such an opt out in 1980, the private plans generated benefits of nearly $7,000 per month compared to Social Security benefits of $1,300 per month for employees earning $50,000 per year. In fact, when Social Security benefits are compared against contributions, a male earning $95,000 per year and retiring in 2045 is estimated to lose over $200,000 by participating in the Social Security system, according to Joseph Fried in “Democrats and Republicans – Rhetoric and Reality.” There can be little question that private markets outperform Social Security.
The private markets also provide honest accounting and transparency that is lacking from Social Security. The Social Security Trust Fund is said to have a $2.5 trillion surplus. Except there is no surplus. “Surplus,” when used by the government, refers to money you give to Social Security that actually stays there to fund your retirement, as opposed to funding someone else’s. In ordinary parlance this isn’t called a surplus; it’s just called a regular funded account. But even the funds for your retirement are not really there. The federal government has borrowed your retirement funds to pay for its other expenditures and given you IOUs in exchange. Charles Ponzi would be proud to see the United States government utilizing multiple layers of his namesake.
The government has enough debt. The debt ceiling debate is our reality check. Rather than raising the debt ceiling, we should begin the long needed phase out of Social Security. The solution is not that complicated, but it does require sacrifice. By phasing out benefits and contributions based on number of years to retirement, we can ensure that seniors who have relied on social security still get most of the planned benefits and that younger people have more capital to plan for their own retirement with private options. Benefits and contributions would be higher for those near retirement and lower for those far away. Since the young would be paying less into the system than the seniors are collecting, it would require the government to cut spending elsewhere (which is probably a good thing in itself) to fund the wind down of Social Security. It will cost money. It will be unpopular. But it is the principled thing to do.
Read the entire article HERE.
April 25, 2011
by Andrew Malcolm
Great news for America’s psychiatrists, attorneys and scam artists preying on the elderly:
Now, in addition to soaring gas prices, college tuitions, inflation, home values sinking beneath mortgages, layoffs of older workers, unfinanced federal debts, increasing taxes and stubbornly high unemployment, deadlocked government, healthcare cost savings that don’t materialize and whimsical wars in meaningless places abroad, a majority of Americans now believe they won’t have enough money to live comfortably in retirement.
If there is such a thing by the time they get there. If they get there.
A new Gallup Poll out this morning finds a record 53% of Americans who aren’t retired figure by the time they reach their so-called golden years they won’t be able to afford it.
That percentage is up about 20 points since 2002.
This isn’t just some hypothetical political discussion point.
Polls and interviews show an almost palpable sense of unease across the country these days as one-time givens — a family’s home is its largest and safest investment, for instance — turn to mush in a new era of perpetual fiscal and partisan political uncertainty.
On the right hand, this could feed Republicans’ hopes to claim the mantle of change to believe in come 2012 when, among other challenges, Democrats must defend 23 of the 33 scheduled Senate contests. Initial congressional recess reports from the homefront indicate some Republicans are encountering resistance to their tough budget plans, which have +/- 0 chance of passing the Senate.
On the left hand, President Obama and Democrats are counting on inflaming such fears among future seniors to help their election cause next year when the former state senator attempts to become only the second White House Democrat to win two terms since a generation before Obama was born somewhere.
This as the GOP in Congress earnestly attempts to address the $14 trillion federal deficit by pushing for cost-saving reforms in sacred but encrusted entitlement programs such as Medicare that are rapidly outrunning the ability of the aging and shrinking workforce to underwrite them.
Lowered expectations are also creeping through the nation’s mindset.
While Washington politicians pontificate and argue over preserving Social Security as a sacred trust, fully six out of ten American workers have already decided that after an entire working life contributing from every paycheck, they will actually receive no benefits from Social Security upon retirement.
That’s the most pessimistic level in nearly a quarter-century.
Gallup has also detected a change in expectations about retirement age.
Sixteen years ago when Gallup asked that question, only 12% said they would have to work past 65. That percentage has now more than tripled (37%).
Likewise, the proportion that says it will retire before age 65 has plummeted from 47% down to 28%, who are still fooling themselves.
– Andrew Malcolm
Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.
At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.
Those records reflect a long-term trend accelerated by the recession and the federal stimulus program to counteract the downturn. The result is a major shift in the source of personal income from private wages to government programs.
The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. “This is really important,” Grimes says.
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The recession has erased 8 million private jobs. Even before the downturn, private wages were eroding because of the substitution of health and pension benefits for taxable salaries.
The Bureau of Economic Analysis reports that individuals received income from all sources — wages, investments, food stamps, etc. — at a $12.2 trillion annual rate in the first quarter.
Key shifts in income this year:
• Private wages. A record-low 41.9% of the nation’s personal income came from private wages and salaries in the first quarter, down from 44.6% when the recession began in December 2007.
•Government benefits. Individuals got 17.9% of their income from government programs in the first quarter, up from 14.2% when the recession started. Programs for the elderly, the poor and the unemployed all grew in cost and importance. An additional 9.8% of personal income was paid as wages to government employees.
The shift in income shows that the federal government’s stimulus efforts have been effective, says Paul Van de Water, an economist at the liberal Center on Budget and Policy Priorities.
Read the entire article HERE.