In his seminal book, Friendly Fascism, published in 1980, political scientist Bertram Gross predicts that a future America would be one where power elites continually dominate America’s government, specifically through corporatocracy and a light fascism.  He writes:

“[R]eform measures provide a means of siphoning up political power.  Where they involve new benefactions or new regulations, this can happen whenever their provision involves the setting up of a new or stronger bureaucracy.  Any concrete benefits for people at the middle or lower levels of the social pyramid are balanced off with additional power or prestige at the top. This is why many reforms that may indeed be great victories for people at the middle and lower levels of society… turn out also to be a form of payola.”

We’ve already discussed how the president’s proposed job bill has less to do with creating jobs and more to do with delaying the double dip past the next election cycle, but there’s more to it. It should come as no surprise to anyone that the government’s primary purpose is not to represent the people, but to bring in campaign dollars using public money for corporate welfare. The question is not, “will the job bill centralize power in the corporatocracy?” Off course it will.  The question was always about how.  Now we know.   Read More »

As the housing bubble expanded, it was common to hear the media pound the table praising the benefits of owning a home.  “It’s the most important investment in your life.  It’s the American Dream.  After all, it’s land and they’re not making it anymore.”  You don’t hear that so much these days.  A home isn’t an investment.  Its primary purpose is a functional material good.  Sitting on it isn’t going to gain you a small fortune while you upgrade to a bigger house every few years.

If you said in 2005 this was poor reasoning, you’d be called a heretic. The average Joe has little perception of what’s a sure thing and what’s overvalued.  A bubble doesn’t really become dangerous until it receives mainstream attention, attracting middle and low income people. You know how this ends.  Banks get bailouts and everyone else gets more debt than they can ever hope to pay.

The consistent message sent to the middle class over the last 30 or 40 years has been, “give your money to Wall Street.” The narratives that seemed so logical five years ago aren’t gone; when corruption isn’t exposed and prosecuted, it merely migrates.  Today, regular Americans have bought into a new Wall Street scam, another sacred cow that seems so solid that doing anything else with your money just seems stupid — getting a college education at any cost.

Read More »

Courtesy of Zero Hedge, JP Morgan has a “preview” of what will happen as a result of the jobs plan. They note, “All in all, we anticipate that little will come out of tomorrow’s speech to make us re-think the near-term outlook.” But what stuck out at us was what they view as the real purpose of the proposed jobs plan:  Read More »

A hell of a lot of bad news just got dumped on us, so lets take a look at what’s going on and whether the likelihood of recession has increased substantially or not.  Read More »

Most of us in the under 40 camp suspect that Social Security will not be there for us when we retire, at least not to the degree it is there for retirees now.  This is as good a time as any to review the state of the Trust Fund and it’s  feeasability for future generations.  Its generally common knowledge that the fund has been raided for easy cash by legislators over the years, but exactly how much is left and if there is a national debt emergency, will the checks go out the following month?

Recently President Obama gave an interview with CBS with Scott Pelley on the debt ceiling increase in which he said he could not guarantee that government checks, including ones for Social Security, would go out.  This immediately set up a red flag among some on the net that money set aside in the Social Security Trust Fund was not actually there and politicians have been lying to us about the program’s supposedly “responsible management.”

The President seems to disagree.  Here are the president’s exact words from that interview:

“This is not just a matter of Social Security checks.  These are veterans checks.  These are folks on disability and their checks. They’re about 70 million checks that go out…  I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

There are three possibilities, 1) The president is playing politics in an attempt to scare the people in to supporting a debt ceiling increase,  2) he made an honest mistake, or 3) he’s being truthful and there is no money in the SS trust fund.

Jacob Lew of The Office of Management and Budget says there’s no problem.  In a USA Today article published earlier this year he states:

“Social Security benefits are entirely self-financing.  They are paid for with payroll taxes collected from workers and their employers throughout their careers.  These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries…

According to the most recent report of the independent Social Security Trustees, the trust fund is currently in surplus and growing.  Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

However, according to the Office of Management and Budget’s own reports, these balances showing a surplus are merely budgetary gimmicks that do not represent an actual ability to pay!

“These balances are available to finance future benefitpayments and other trust fund expenditures—but onlyin a bookkeeping sense. These funds are not set upto be pension funds, like the funds of private pensionplans. They do not consist of real economic assets thatcan be drawn down in the future to fund benefits. Instead,they are claims on the Treasury that, when redeemed,will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large trust fund balances,therefore, does not, by itself, have any impacton the Government’s ability to pay benefits.”

In short, the Social Security trust fund contains no money.  Charles Krauthammer agrees, writing in the Washington Post earlier this year, “When your FICA tax is taken out of your paycheck… most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury – and is spent… In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100.  There are countless such pieces of paper in the lockbox.”

Washington’s Blog notes that according to a 1998 Senate Budget Committee session transcripts between then Federal Reserve Chairman Allen Greenspan and the late Senator Ernest Hollings, the Federal Government had borrowed over $700 billion from the trust fund.  Hollings said:

“What we’ve been doing, Mr. Chairman, in all reality, is taken a hundred billion out of the Social Security Trust Fund, transferring it over to the spending column, and spending it. Our friends to the left here are getting their tax cuts, we getting our spending increases, and hollering surplus, surplus, and balanced budget, and balanced budget plans when we continue to spend a hundred billion more than we take in… We owe Social Security $736 billion right this minute.”

Can things get any worse? Of course they can! While borrowing money from Social Security may have helped the government pay its debts when the program was in surplus, now that the program is in the red, it’s actually adding to the national debt.  Krauthammer notes that according to the CBO, Social Security payments added $37 billion to the federal defecit in 2010.  Couple this with President Obama’s commitment to keep the Payroll Tax low until his reelection in 2012, and you are introducing even more instability into the already strained program.

UPDATE (4-26-12): According to the Social Security Trust Fund’s 2012 report to Congress, unfunded liabilities is now a little over $20.5 trillion, up $2.6 trillion from the previous year. Analyst Bruce Krasting notes the size of liabilities increased by more than double the national debt for the same period, a stunning increase.

Not long ago I noticed that manufacturing and some import/export data had come in significantly below expectations, enough to warrant a downward revision in Q2 GDP.

Well, the results are coming in now and they’re pretty damning.  Goldman’s out with a report today predicting it at 1.5 percent, down from the 1.8 percent originally predicted at the end of Q2.  Even more shocking is their prediction for unemployment by election time 2012.  Goldman sees unemployment at a stunning 8.75 percent at the end of 2012 barring “further changes.”  Goldman is also saying that recession is now a possibility.  They do say however, that the third quarter will see some resolution to the Japanese earthquake disruption, so the coming months may not be as bad.

A section of the report, via Reuters, cleaned up a bit for clarity.

New estimates for real GDP growth in the second and third quarter of 2011: Between 1.5% and 2.5%, respectively.  Down from original estimates 2% and 3.25%.

Our forecasts for Q4 and 2012 are under review, but even excluding any further changes we now expect the unemployment rate to come down only modestly to 8¾% at the end of 2012.

The main reason for the downgrade is that the high-frequency information on overall economic activity has continued to fall substantially short of our expectations.

Some of this weakness is undoubtedly related to the disruptions to the supply chain—specifically in the auto sector—following the East Japan earthquake.  By our estimates, this disruption has subtracted around ½ percentage point from second-quarter GDP growth.  We expect this hit to reverse fully in the next couple of months, and this could add ½ point to third-quarter GDP growth.  Moreover, some of the hit from higher energy costs is probably also temporary, as crude prices are down on net over the past three months.

But the slowdown of recent months goes well beyond what can be explained with these temporary effects… final demand growth has slowed to a pace that is typically only seen in recessions. Recession is not our forecast, but clearly a possibility given the recent numbers.

Of course, it’s always worth including a disclaimer that this is Goldman and they have their own agenda, but it’s not in their interests to make wrong predictions either. So take that for what it’s worth.