Open thread August 31, 2021 Dan Crawford | August 31, 2021 6:25 am Comments (51) | Digg Facebook Twitter |
The Economy Is Booming but Far From Normal, Posing a Challenge for Biden
The annual Social Security/Medicare reports to Congress are now 150 days late. A record. Can anyone hazard a guess as to why??
Social Security is projected to be insolvent a year earlier than previously forecast.
“he 2021 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds
This is ridiculous. No more than 6 months? No fine? And of course she isn’t vaxxed. Past time for Garland to be replaced.
“As part of the plea agreement, the prosecution and defense agreed that Courtright’s sentencing guidelines would be between zero and six months in prison. As part of the deal, the government will request that the four other counts Courtright faced will be dropped after her sentencing….
Judge Christopher R. Cooper set sentencing for Nov. 16. It is scheduled to take place in-person, but Courtright’s lawyer noted that the Courtright family has not received any COVID-19 vaccination and has no plans to do so. Courtright, asked by Judge Cooper whether her vaccination status would change between now and sentencing, said “probably not.”
A college student who bragged about her participation in the Jan. 6 riot at the U.S. Capitol on social media and swiped a “Members Only” sign as she walked through the building pleaded guilty to a misdemeanor as part of a plea deal on Monday.
Gracyn Courtright, a woman from West Virginia who was a senior at the University of Kentucky in January, pleaded guilty on Monday to one count: unlawfully and knowingly entering and remaining in a restricted building or grounds. As part of the plea agreement, the prosecution and defense agreed that Courtright’s sentencing guidelines would be between zero and six months in prison. As part of the deal, the government will request that the four other counts Courtright faced will be dropped after her sentencing. …
Every week I get either a robocall or an post card or both soliciting the sale of my home as is. Once I actually talked to a live person who became rude when I declined to sell insinuating that I was foolish not to want to take advantage of the seller’s market. She backed off after I told her that I lived in my home and if I sold it then where would I live that would offer me as much as I had now? Of course, there would be now such place which is why I bought the home that I am in to begin with.
In any case, the aggressive nature of realtors tells me that new home prices and sales may be getting misinterpreted. Median prices will rise if more expensive homes are being built and fall if less expensive homes are being built. Permits and starts are not completions.
Builders have a lot of information at their disposal and an inclination to maximize their returns. With access to cheap credit, a supply constrained housing market, and shortages for building materials, then builders would have every reason to wait for offers to meet their asks rather than lower their asks to the meet early offers.
IOW, builders are less constrained by the cost of patience than sellers that will need somewhere else to live or buyers that will need to sell in order to close on their replacement home. So, price is a function of supply and demand, but also patience, if and only if one can afford to be patient.
Debt ceiling debate, Fed tapering, and rate hikes.
Seems to me that an increase in the debt ceiling allows the treasury the ability to sell more bonds, but to who? When the fed tapers, at such low rates/yields, domestic investors are not going to switch from stocks to bonds and foreign counterparts either don’t have the excess or don’t want to get off the gravy train. Which leaves rates to rise to make an appetite. If Powell has indicated anything it would be they are going drag this out for as long as possible, which in turn burns the bottom 30% of the economy with inflation. Sounds to me like the Fed is in a really tough situation.
Couple that with $890 billion in debt funded stock trades, as soon as the Fed hits go, we are looking at margin call ladders to the bottom of a debt bubble propped up by cheap Fed money. Who gets left holding the bag this time? Probably under water mortgages originated over the past 9 months, and again the banks playing fast and loose. Between debt spiked stocks, 3 million evictions about to go through, under water home and auto buyers, credit cards are next and the almighty student loan next year. I see a setup for not so stable times.
“…but to who?…”
Trade Deficit at a Record High in June, Rises 6.7%
run75441 | August 6, 2021 9:21 pm
Hot Topics US/Global Economics
on Surge in Imports of Industrial Supplies and Materials, Commenter/Blogger RJS at MarketWatch 666
[Dunno. Who are our surplus trading partners that might want to spend their excess trade surplus dollars on US debt in order to hold the exchange rate that brought them those surpluses? Surpluses mean jobs. So who on Earth wants their country to have full employment that depends upon exporting to the US to do so?]
I hadn’t yet connected that piece in my head. Thank you!
But otherwise, agreed. Think back to 2008. The mortgage house of cards would have collapsed by midyear 2006 when prime rate had risen to 8 1/4% if not for AIG selling credit default swaps like hotcakes. Delaying the inevitable just made it worse of course, but that is how it goes.
[Exorbitant privilege (of the US$) is a great thing to have until it isn’t. It might not be great enough if too many of the better paying labor jobs are lost. It might not be exorbitant enough if the US economy experiences low-flation or secular stagnation. It might not be privileged enough if the employment objectives of emerging economies can be met without their trade surpluses for US dollars.]
The Future of Reserve Currencies
Finance & Development, September 2009, Volume 46, Number 3
Benjamin J. Cohen
For nearly a century, the U.S. dollar has reigned supreme, but are those days over?
THE global economic crisis has again raised the question of the future of reserve currencies. For nearly a century, the U.S. dollar has reigned supreme as the world’s top international money. In recent decades, however, confidence in the greenback has been undermined by the United States’ persistent current account deficits and growing foreign debt. Increasingly, observers have predicted an end to the dollar’s dominance. For many, the dollar’s fate seemed sealed following the collapse of the U.S. housing market in mid-2007, which triggered the greatest upheaval in U.S. financial markets since the Great Depression.
As it turned out, the crisis proved to be anything but fatal for the dollar. Not even the troubles of the U.S. financial sector, which required massive government interventions, sufficed to tip preferences decisively. Instead, ironically, the crisis temporarily reinforced the greenback’s global standing, as investors fled to the dollar for safety…
Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System
By Barry Eichengreen
224 pp, Oxford University Press, USA, 2011
[Have not read the book, but I do wonder how much Barry got correct.]
BDSwiss Insights: Dollar Is Destined to Remain World’s Main Reserve Currency – Unfortunately
Aug 13, 2020 2:19PM EDT
Marshall Gittler is the Head of Investment Research at online brokerage firm BDSwiss Group
There’s been a lot of chatter recently in the press about whether the explosion in the Fed’s balance sheet and the soaring price of gold are signaling an end to the dollar’s reign as the world’s main reserve currency. I don’t think that’s likely to happen any time soon, or even not so soon. That’s a shame because contrary to what a lot of people seem to believe, it would be a good thing for the US if it did happen.
As far as we know, the dollar accounts for 62% of reserves, EUR is 20%, and then there are the rest. Take a look at the IMF’s breakdown of reserves by currency at http://data.imf.org/?sk=E6A5F467……
Yeah, I had seen a CLO bubble pop up pre-pandemic and thought it interesting and then over the weekend someone published a story of margin trading almost hitting a trillion dollars. And then there are also the reverse repos happening every night at super high amounts per pull. I am sure that between the taper, higher rates, and reverse repos the system shouldn’t freeze up like last time, but it makes me think that other nations might be looking at us again much like the debt ceiling increase that almost wasn’t under Obama, and we might be short lived on the reserve currency front. I could see China’s recent crackdown as a larger part to become that new reserve currency for the world.
At some point, some presently unknown point, in the future, the US will need to stop making way more money than tangible goods, but at this time there still seems no emerging solution that would replace Bretton Woods II (common euphemism for Bretton Woods remainder after Nixon ended convertibility). Nixon made a bad system worse, essentially the secret sauce for US politics. The bigger government makes problems then the more the people need government. FDR did so much to make things better for the working man then the republicans that followed him had to work extra hard to make them worse again.
Perhaps when the world comes to trust China, then renmimbi will become the global reserve currency, whenever that will be. Not all the world likes the US, but they know us well enough to trust the dollar, our most sacred religion.
It’s almost like there’s a horde of real estate agents out there
waiting to pounce, getting their commissions when you sell
your current house and also when you buy its replacement.
Also, another horde of car sales people doing exactly the
same with respect to your personal vehicles. Hey, they’ve
gotta make a living.
The World Is Still Short of Everything. Get Used to It.
Fred, i don’t know about the other shortages, but the chip shortage seems to be tied to the covid surge in Malaysia, who has just moved up to 6th most newly infected country in the world, just behind Brazil:
Or, you could say the ‘chip shortage’ is due to
moving chip manufacturing off-shore.
Way, way off-shore.
you all ready for C.1.2?
New COVID variant detected in South Africa, most mutated variant so far – A new coronavirus variant, C.1.2, has been detected in South Africa and a number of other countries, with concerns that it could be more infectious and evade vaccines, according to a new preprint study by South Africa’s National Institute for Communicable Diseases and the KwaZulu-Natal Research Innovation and Sequencing Platform. The study is awaiting peer review. Scientists first detected C.1.2 in May 2021, finding that it was descended from C.1, which scientists found surprising as C.1 had last been detected in January. The new variant has “mutated substantially” compared to C.1 and is more mutations away from the original virus detected in Wuhan than any other Variant of Concern (VOC) or Variant of Interest (VOI) detected so far worldwide. While first detected in South Africa, C.1.2 has since been found in England, China, the Democratic Republic of the Congo, Mauritius, New Zealand, Portugal and Switzerland. The scientists believe that the number of available sequences of C.1.2 may be an underrepresentation of the spread and frequency of the variant in South Africa and around the world. The study found consistent increases in the number of C.1.2 genomes in South Africa on a monthly basis, rising from 0.2% of genomes sequenced in May to 1.6% in June and then to 2% in July, similar to the increases seen with the Beta and Delta variants there. The study also found that the C.1.2 lineage has a mutation rate of about 41.8 mutations per year, which is nearly twice as fast as the current global mutation rate of the other variants. The scientists stated that this short period of increased evolution was also seen with the Alpha, Beta and Gamma variants, suggesting that a single event, followed by a spike in cases, drove faster mutation rates. More than half of the C.1.2 sequences have 14 mutations, but additional mutations have been noticed in some of the sequences, suggesting that evolution within the lineage is ongoing, according to the study. More than half (about 52%) of the mutations in the spike region of the C.1.2 sequences have previously been seen in other VOCs and VOIs. The mutations N440K and Y449H, which have been associated with escape from certain antibodies, have also been noticed in C.1.2 sequences. The scientists stressed that the combination of these mutations, as well as changes in other parts of the virus, likely help the virus evade antibodies and immune responses, including in patients who have already been infected with the Alpha or Beta variants. The scientists added that further work is required to understand the exact impact of these mutations and to see if they give the variant a competitive advantage over the Delta variant.
‘Doomsday’ Covid variant detected in South Africa even worse than Delta strain
Trustees Report up today.
Trustees report, up yesterday
That’s a link, by the way.
the “year earlier” Social Security reported death date is completely meaningless. we need to raise the payroll tax 2% (each) by then. Better to start now raising it one tenth of one percent at a time….about a dollar per week per year for worker making 50k.
The covid recession changed the schedule from “one tenth of one percent per year” to “an average of one tenth of one percent per year.” the delay in starting to make the payments already would have made that difference.
if we wait until the last minute, the full 2% will hit us at once. this will cause a lot of bleating, but no one will be killed, and a week later no one will notice the difference.
the bad guys are hoping to stampede us into letting them cut benefits or otherwise give SS a fatal wound.
the good guys are doing the same thing only backwards: they want to destroy SS by “making the rich pay”…that is, turning it into welfare as we knew it.
the bad guys have the advantage of knowing what they are doing. the good guys are just stupid and greedy.
It seemed to me years ago that Social Security was not long for this world.
I planned accordingly and warned my offspring to do likewise.
Sure, raise the payroll tax now, because that’s money
that’s needed to pay benefits NOW.
the reason for the ultimate 2% raise is that’s what it will cost to feed and house yourself when you retire…mostly because you will live longer than your grandparents. it is going to cost that much however you get the money. from “the rich” or “the government” or your son in law or your own savings or the stock market or social security. Social Security is the safest “insurance” that you will actually have it when you need it.
Dale, does your 0.1% per year result in a much diminished Trust Fund balance after the 20 years? If the net tax increases fully fund the program’s payments, then let the Trust Fund go near zero.
the o.1% increase (each) maintains the trust fund at 100% of a year’s benefits forever…congress will never have to pay the principal back, barring an unexpected catastrophe (what the Trust Fund is for). I don’t remeber off hand the exact level the Trust Fund is at, but it has been run up over recent years to about 300% in order to pay for the Boomers….actually, in order to let the Boomers pay for themselves.
Thanks. Seems a little high…like we can miss by 20% for 5 years and still be okay, when missing by 20% in one year should be a 5 alarm fire for the system. But not as high as I thought it might be.
no reason for SS to go away, except the people get fooled into not paying for it, as they always have. the people pay for their own future benefits while they are still working, and they get their money back with interest when they retire from the people who are then paying into SS for their own future benefits. this is NORMAL FINANCE which the people who lie about Social Security have taught you to believe is a “burden on the young.” The young will get their money back, with interest, when they need it most. meanwhile they have more money and will live longer than their parents and grandparents who took care of them when they were young and built the infrastructure that makes them richer while working less.
Well, the arrangements are problematic when population growth
falters. For it to work adequately, since currently workers pay
much of what is provided to retirees, there should be
at least as many current workers as retirees. Looks
like that will not be the case soon enough, if
Also, the younger workers ought to be pretty well-paid,
steadily employed (i.e. paying into Soc Sec for the
long term), probably relatively few paying double
FICA as the self-employed do, as that is particularly
onerous. Although surely every contribution helps.
Younger workers take heart. There are fewer of us old
geezers using up your retirement benefits every day.
There SS benefits will last far longer than their Medicare Benefit TF which Medicare Advantage is burning up at a far faster clip with over charges resulting from erroneous risk diagnosis, over charges, and fraud.
The report apparently says just the opposite, that
Medicare is in no serious funding trouble, but traditional
soc sec checks might well be reduced by 25% in about 10 years.
not sure what you are saying here. we haven’t missed by 20% in five years or at all: the Actuaries predicted this in 1983, but Congress did not want to raise the tax that much then. I think they were right about that. Less right about not arranging to raise it gradually when needed. then to forget the whole thing and start shouting SS is broke, flat bust, with the rest of the liars… that is unforgivable.
My point is if your +2% actually balances inflows and benefits, holding a full year of benefits in Trust feels like overkill. If the system underran by 20%, notionally you’d have around 5 years to solve the problem, but a 20% miss would be so big you’d have to wonder if the Treasury really could redeem the Fund assets as there would be some wild terrible problems with the economy to miss that bad. Might as well bring the TF down to 15% or so to just handle small misses without needing new legislation.
unlikely, and not predicted, that there will ever be less young people than old people. the predicted ratio is about 2 workers per retiree. which is another way of saying your SS payment needs to be about as much over 40 working years as your benefit will be over 20 expected years in retirement. count the benefit as about 40$ of your working year average, and you are about there (exactly there if you factor in the time value of money.
the old are certainly not using up the young people’s retirement benefits. This is a normal way finance works. everyone is gonna get what they paid for.
Will births in the US rebound? Probably not.
(Brookings, May 24, 2021)
Doesn’t mean the birth rate will stay below the “replacement rate” forever. It is unwise to panic because of any of these projections. Things change. And even if the population declines, it will take a long time for it to make a measurable difference… and you have to realize that decline would eventually become a decline in the retired population as well. Meanwhile if wages rise as population declines (should happen, “all economists agree,” The percent of wages needed to support you in your retirement will remain about the same. Or if it does not, there is still no reason to cry about it. Our parents and grandparents had the Depression and World War 2 to ruin their lives. I xcan’t imagine having to pay ten cents a pound more for our future bread than our parents did is going to make us feel so bad
What is important about learning to think straight is to avoid jumping to sky-is-falling conclusions based on two things your read on the internet or even in theN.Y.Times.
Personally, I am hoping that at some point Dems will make a serious effort to reduce income inequality in the US. Social Security funding, going forwards, will have to be tackled, but those who are ‘advantaged’ by income inequality had better use that advantage to prepare for difficult days to come, retirement-wise.
Perhaps, allowing people to go unvaccinated will help the funding of Social Security? At least what is being paid into SS can be appropriated for others. We have 660,000 dead. Not sure if they are low income or not. Perhaps, they are middle incomes? Maybe we should not push vaccination ? It may add extra funding and solve population increases. What do you think, would 1 million middle or median income work. 72,000 x .06 (close enough) = 4200 x 1,000,000 = ~ $4.2 billion going into the SS TF. I did that in my head, so check my math (I could be wrong).
Would that add a month or two?
Look, even if you got negative interest from your Social Security “investment” that might be a reasonable price to pay for the certainty of getting a benefit high enough to keep you from eating out of dumpsters.
And you tell me why the atrios are willing to sell their Social Security to “the rich” in order to save themselves one dollar per week? [if the rich pay for it, they own it, and it won’t take them long to discover we have the will but not the wallet, and start cutting it until it is no longer worth having. but it will still be called “Social Security,” and that’s what they mean by “saving the program.”]
I can’t understand what you are talking about. You don’t seem to understand what I am talking about.
No. Killing people won’t help SS funding…whether they are workers or retirees.
I have never suggested we not push vaccinations. I have said “forcing” people to get vaccinated will backfire. Even talking about forcing them, and calling them names, just tells them why they hate Libs and fear the Gummint.
I can’t do arithmetic in my head any more. but my math is still okay. The difference between math and arithmetic is that you can do arithmetic all day without knowing what you are talking about. Math means understanding the problem.
those advantaged by income inequality are pretty good at looking after their own interests. that’s why they want to cut Social Security and won’t let you “make them pay” for it. FDR knew this. that’s why he insisted SS be paid for by the workers themselves. that’s why SS has outlasted all the “rich pay for it” welfare programs.
those dis-advantaged by income inequality are not so good at looking after their own interests. that’s why they won’t pay a dollar a week to keep Social Security out of the hands of the rich…who will own it if they pay for it, and cut it to death if they own it.
SS was invented to save workers from poverty in old age. The rich think they have a better plan to save themselves from poverty in old age. They might be right about themselves, but they don’t give a damn about the workers.
Oh…the rich are probably wrong about themselves too. they weren’t doing all that well in 1932. they were glad when Roosevelt saved the banks. But they hated him when he used a little of the money he saved them to save the poor. And they are completely unable to understand that when the workers get too poor, it isn’t too long before the whole money-making enterprise that makes the rich their money grinds to a halt.
thanks for explaining. my understanding is the 100% of a year’s benefits is held as a prudent reserve by those whose job is to know what a prudent reserve is. my guess is that a recession that led to a 10% drop in total wages, and thus total tax income to SS, could last for ten years before the reserve (trust fund) ran out, that sounds prudent to me and not at all excessive.
meanwhile that trust fund is earning interest and that interest helps keep the payroll tax about one percent lower than it would otherwise be. the trustees do not count the interest when they make a finding of actuarial solvency or insolvency. that is also prudent. but the interest is actually paid and it actually makes the actual sortfall, if it occurs, less than the actuarial shortfall which is predicted.
and, i hate to say this because it sounds like i know more than i do… but after looking at this thing for over twelve years i think i have a feel for this: SS is more important for the economy the way it is currently structured than most people remotely consider. contrary to Friedman, SS does NOT reduce national savings. it arguably reduces investment….too long an argument here… but for the last many years there have not been enough real investment opportunities to make honest use of the money available. meanwhile, as a hint, any investment is ultimately redeemed and the redeemer uses the money for his daily spending (consumption not investment…that’s ultimately, i am not forgetting that he may just invest in something else). SS does exactly the same thing… it takes your investment (savings) and immediately puts it back into the economy as consumption spending by today’s retirees. that skips the “investment in a business” step, but if you count the ultimate redemption…. or the ongoing daily redemption going on among all investments,,, it amounts to the same thing.
meanwhile those savers are freed from the anxiety of not having enough to retire on, so they are more likely to spend on consumption, or other ‘real’ investments, than they would be if they were insecure. i think this results in more investment, direct or by the people selling stuff to the consumers, than there would be without SS. Certainly the economu goes to hell when people are afraid to spend or invest.
okay…here is the bit i don’t like to say… i think that my “feel” for this is probably valid, but i don’t know of any real “economics” to back me up, and i wouldn;t trust it if i did. there may be real economists doing real useful work, but those are not the people we hear from in public who are just politicians with a ph.d.
amd pm the other hand the trust fund could go to zero today and it wouldn’t hurt anything that made any difference. the tax increase (2% each) would need to start immediately, but the people paying the tax would still get their money back when they retire, with interest. no one would really miss the 2%, and the alggregate subtracted from their spending would show up in the spending of the retired people getting their benefits
i would love to have a number of honest knowledgeable people to talk to. but you see how that goes.
i think the “ten year 10% reserve” is prudent because it would take congress at least that long to do anything about whatever was causing the shortfall, as we have seen. the trustees try to help them out by predicting the drawing on the reserve ten years in advance, giving congress twenty years to react…. or would if it were only a recession. the current reserve will run out fast once is falls to only 100% because the reason it is falling is that the tax is too low to cover current expenses. we are drawingon a much higer reserve created to fund the boomers by the boomers,l but meanwhile life expectancies have gone up, population growth has slowed down, income growth has slowed down… which all looks bad, but it’s pnly a two percent problem. or a one tenth of one percent problem if we get on it today.
actually, the Trustees have helped them out more than that… they have been projecting that shortfall in about 2030 (or so) since at least 1990, giving congress forty years of warning.
what congress has done with the warning is join the forces screaming “Social Security is Broke!” and doing it so loudly no one can hear …”but it can be fixed for a dollar a week…actually, it would have been about 40 cents per week if they had started earlier.
and now, the “Liberals” have gotten into the act with their very bright idea of “making the rich pay”… exactly what FDR warned against. I’d say it was stupid greed, but it;s probably worse than that: it’s just people who can’t think at all joining the monkey-shouting their tribe thinks will outshout the other tribe. The other tribe is smaller, but they paid for the microphone.