Mish's Global Economic Trend Analysis

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• Reader Questions on the 1 Trillion Coin Proposal: Where's the Money Come From? Will It Cause Inflation?
• Social Security Trends: Beneficiaries, Total Costs, Number of Workers, Ratio of Workers to Beneficiaries
• Eurozone Unemployment Hits Record High 11.8%; Spain 26.6%; Greece 26%; Youth Unemployment top 56% in Greece and Spain

Reader Questions on the 1 Trillion Coin Proposal: Where's the Money Come From? Will It Cause Inflation? Posted: 08 Jan 2013 03:56 PM PST Several people asked me to comment on the $1 trillion coin proposal endorsed by New York Times columnist and Noble Prize winner Paul Krugman. I did so yesterday in a satirical post Krugman Supports the $1 Trillion Coin; Why Stop There? I Support the $1 Quadrillion Coin. In response to the above article, I have received several emails wondering where the money comes from. For example reader Tom writes ... Hello Mish, Thank you for your hard work and honest voice in producing this blog, I follow it daily. There is something that I do not understand in the platinum coin proposal. Where does the treasury come up with the trillion to purchase the platinum? Is this money printed from thin air? If the treasury had a spare trillion to purchase platinum they would not need to give it to the fed, simply use the trillion to finance more worthless deficit spending, a blatantly bad idea given the very low return we are now experiencing on stimulus. Thanks, Tom Fictitious Accounting Entry Hello Tom. The proposal is nothing but a fictitious accounting entry. There is no trillion dollars. Certainly the treasury would not buy a trillion dollars worth of platinum. Indeed, that would be impossible, at least at today's pricing. Rather, the proposal was to take a coin (size is irrelevant), and stamp "one trillion dollars" on it. Questions of legality have arisen as noted in my article. It's important to note that Krugman (correctly) never proposed spending the coin. It would take an act of Congress to spend it. Thus, the proposal was to value the coin at one trillion dollars simply as an accounting entity. In other words, the Treasury would take a coin worth essentially nothing, that could not be spent, and value it on the books as one trillion dollars. Accounting Fraud My personal opinion is that it would be fraud to do place a one trillion value on a coin that could not be spent (in this case, because the money was already spent. In higher denominations, the money would not be spent until Congress authorized such spending). Regardless, actual future spending would be precisely what Congress authorized to be spent, no more no less. No Inflationary Effect There would be zero inflation as a result of minting such a coin. Indeed, it would not cause inflation if the Treasury minted a 1,000 quadrillion coin. This is an important point. Debt Ceiling Nonsense The entire exercise is to avoid another nonsensical discussion about whether or not Congress will bump up the debt ceiling. I say "nonsensical" because we all know that Congress will indeed cave in and bump up the debt ceiling. On that score, Krugman actually has a point. However, (ignoring legalities and accounting fraud) there certainly is a huge need for discussion in Congress about the deficit and debt levels. That is why I am against the coin idea even if it is legal (which I doubt). However, in case I am legally wrong, I repeat what I said earlier (the treasury should mint a one quadrillion coin), simply to highlight the absurd nature of the idea. With that, I repeat my proposal for this picture on the front of the coin. The back of the coin should be equally obvious. Paul Krugman Prays for America. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Social Security Trends: Beneficiaries, Total Costs, Number of Workers, Ratio of Workers to Beneficiaries Posted: 08 Jan 2013 12:57 PM PST Inquiring minds are digging into social security trends including the numbers of beneficiaries, average costs, total costs, number of workers, and the ratio workers to beneficiaries. First, let's take a look at the CNS News report Social Security Ran $47.8 Billion Deficit in Fiscal Year 2012. The Social Security program ran a $47.8 billion deficit in fiscal 2012 as the program brought in $725.429 billion in cash and paid $773.247 for benefits and overhead expenses, according to official data published by Social Security Administration. The Social Security Administration also released new data revealing that the number of workers collecting disability benefits hit a record 8,827,795 in December--up from 8,805,353 in November. With that backdrop, let's look at the actual data to see the underlying trends. Data Notes Social Security data from Social Security Online. Employment data from St. Lois Fed Total Nonfarm Employees. OASI is the retirement fund (What people normally think of as Social Security) DI is the Social Security Disability Fund Social Security Beneficiaries December 2012 OASI Trust Fund Retired Workers & Dependents Retired Worker 36,719,288 Spouse 2,280,332 Child 612,087 Subtotal 39,611,707   Survivors Child 1,907,097 Aged Widow(er) 3,937,958 Young Widow(er) 153,628 Disabled Widow(er) 255,472 Parent 1,427 Subtotal 6,255,582   Total OASI 45,867,289 DI Trust Fund Disabled Worker 8,827,795 Spouse 162,881 Child 1,900,220   Total DI 10,890,896 Total OSASI + DI 56,758,158 Social Security Beneficiaries, Costs, Employment Year Beneficiaries Average Monthly Benefit Total Annual Cost Employment E/B Ratio Dec-67 22,979 $73.92 $20,383,201,682 66,900 2.9114 Dec-68 23,886 $85.24 $24,432,839,002 69,245 2.8989 Dec-69 24,709 $86.47 $25,638,687,737 71,240 2.8832 Dec-70 25,701 $101.35 $31,257,463,769 70,790 2.7544 Dec-71 26,817 $113.22 $36,435,282,006 72,108 2.6888 Dec-72 28,066 $138.70 $46,712,482,840 75,270 2.6819 Dec-73 29,514 $143.99 $50,996,092,215 78,035 2.6440 Dec-74 30,576 $163.02 $59,813,483,661 77,657 2.5398 Dec-75 31,862 $179.29 $68,549,741,469 78,017 2.4486 Dec-76 32,835 $194.95 $76,815,361,682 80,448 2.4500 Dec-77 33,923 $211.16 $85,958,416,484 84,408 2.4882 Dec-78 34,453 $229.86 $95,032,473,435 88,674 2.5738 Dec-79 35,013 $258.37 $108,555,575,502 90,669 2.5896 Dec-80 35,526 $300.75 $128,213,644,374 90,936 2.5597 Dec-81 35,930 $340.84 $146,956,770,724 90,884 2.5295 Dec-82 35,778 $372.10 $159,755,010,234 88,756 2.4808 Dec-83 36,034 $393.15 $170,001,091,973 92,210 2.5590 Dec-84 36,439 $412.21 $180,244,135,062 96,087 2.6370 Dec-85 37,027 $429.35 $190,768,953,436 98,587 2.6626 Dec-86 37,683 $438.76 $198,407,802,022 100,484 2.6665 Dec-87 38,171 $461.35 $211,323,314,397 103,634 2.7150 Dec-88 38,613 $484.01 $224,268,374,172 106,871 2.7678 Dec-89 39,141 $511.89 $240,431,129,294 108,809 2.7799 Dec-90 39,825 $544.52 $260,224,095,454 109,120 2.7400 Dec-91 40,587 $568.55 $276,908,006,552 108,262 2.6674 Dec-92 41,504 $588.90 $293,296,976,201 109,416 2.6363 Dec-93 42,243 $607.48 $307,943,241,597 112,204 2.6561 Dec-94 42,882 $628.14 $323,229,663,108 116,055 2.7064 Dec-95 43,386 $648.77 $337,772,228,816 118,208 2.7246 Dec-96 43,736 $672.81 $353,113,695,411 121,002 2.7666 Dec-97 43,971 $692.82 $365,565,297,977 124,357 2.8282 Dec-98 44,246 $707.39 $375,585,941,872 127,359 2.8785 Dec-99 44,595 $730.53 $390,940,040,819 130,533 2.9270 Dec-00 45,415 $767.35 $418,187,686,581 132,481 2.9171 Dec-01 45,877 $795.69 $438,050,881,510 130,720 2.8493 Dec-02 46,444 $815.05 $454,253,081,458 130,175 2.8028 Dec-03 47,038 $840.62 $474,497,794,254 130,259 2.7692 Dec-04 47,688 $871.80 $498,889,778,321 132,316 2.7746 Dec-05 48,434 $915.71 $532,222,768,675 134,814 2.7834 Dec-06 49,123 $955.53 $563,260,007,133 136,882 2.7865 Dec-07 49,865 $987.03 $590,618,750,824 137,982 2.7671 Dec-08 50,898 $1,054.38 $643,995,009,294 134,379 2.6401 Dec-09 52,523 $1,064.41 $670,869,765,261 129,319 2.4621 Dec-10 54,032 $1,074.33 $696,579,633,240 130,346 2.4124 Dec-11 55,404 $1,122.89 $746,557,638,566 132,186 2.3858 Dec-12 56,758 $1,152.79 $785,163,217,034 134,021 2.3613 Notes for Above Table Employment and beneficiary numbers are in thousands. I computed the total annual cost as monthly benefit * 12 * number of beneficiaries. That method will tend to overstate annual costs slightly vs. totaling every month individually. Thus, the total cost may vary slightly from other published figures. Average Monthly Social Security Benefit Total Annual Cost of Social Security 1967-Present Social Security Beneficiaries vs. Total Non-Farm Employment Ratio of Workers to Social Security Beneficiaries Social Security Benefits Analysis The ratio of workers to beneficiaries peaked in 1999 at 2.927 to 1. The ratio of workers to beneficiaries was 2.361 to 1 at the end of 2012. The ratio of workers to beneficiaries is falling fast and will continue to fall fast for a decade as the baby boomer population ages. The average payout and the number of payouts are both rising fast Total Social Security payouts (a multiplication of two rising numbers) are on an unsustainable exponential growth path. The system is currently running a deficit. Trends say that deficit is going to worsen with each passing year unless benefits are cut and/or taxes are hiked. Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Eurozone Unemployment Hits Record High 11.8%; Spain 26.6%; Greece 26%; Youth Unemployment top 56% in Greece and Spain Posted: 08 Jan 2013 10:47 AM PST Inquiring minds are investigating miserable unemployment stats in Euroope as reported this morning by Eurostast. The euro area (EA17) seasonally-adjusted unemployment rate was 11.8% in November 2012, up from 11.7% in October. The EU27 unemployment rate was 10.7% in November 2012, stable compared with October. In both zones, rates have risen markedly compared with November 2011, when they were 10.6% and 10.0% respectively. These figures are published by Eurostat, the statistical office of the European Union. Eurostat estimates that 26.061 million men and women in the EU27, of whom 18.820 million were in the euro area, were unemployed in November 2012. Compared with October 2012, the number of persons unemployed increased by 154 000 in the EU27 and by 113 000 in the euro area. Compared with November 2011, unemployment rose by 2.012 million in the EU27 and by 2.015 million in the euro area. Compared with a year ago, the unemployment rate increased in eighteen Member States, fell in seven and remained stable in Denmark and Hungary. The largest decreases were observed in Estonia (12.1% to 9.5% between October 2011 and October 2012), Latvia (15.7% to 14.1% between the third quarters of 2011 and 2012), and Lithuania (13.9% to 12.5%). The highest increases were registered in Greece (18.9% to 26.0% between September 2011 and September 2012), Cyprus (9.5% to 14.0%), Spain (23.0% to 26.6%) and Portugal (14.1% to 16.3%). In November 2012, the youth unemployment rate was 23.7% in the EU27 and 24.4% in the euro area, compared with 22.2% and 21.6% respectively in November 2011. In November 2012 the lowest rates were observed in Germany (8.1%), Austria (9.0%) and the Netherlands (9.7%), and the highest in Greece (57.6% in September 2012) and Spain (56.5%). EU Unemployment by Country Country Unemployment Rate Eurozone 17 EU 27 10.7   Eurozone 17 11.8 Y Austria - AT 4.5 Y Luxembourg - LU 5.1 Y Germany - DE 5.4 Y Netherlands - NL 5.6 Y Romania - RO 6.7   Malta - MT 6.9 Y Belgium - BE 7.4 Y Czech Republic - CZ 7.4   United Kingdom - UK 7.8   Denmark - DK 7.9   Finland - FI 7.9 Y Sweden - SE 8.1   Estonia - EE 9.5 Y Slovenia - SI 9.6 Y France - FR 10.5 Y Poland - PL 10.6   Hungary - HU 10.9   Italy - IT 11.1 Y Bulgaria - BG 12.4   Lithuania - LT 12.5   Cyprus - CY 14.0 Y Latvia - LV 14.1   Slovokia - SK 14.5 Y Ireland - IE 14.6 Y Portugal - PT 16.3 Y Greece - EL 26.0 Y Spain - ES 26.6 Y Things are bad in aggregate and getting worse every month. Bad does not even begin to describe the misery in Spain and Greece. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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