joi, 17 ianuarie 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Fed Governor Proposes Reorganizing Banks Deemed "Too Big to Fail"

Posted: 17 Jan 2013 04:18 PM PST

The Chicago Tribune reports Fed's Fisher: Reorganize banks that are "too big to fail"
U.S. authorities should reorganize the country's largest banks to protect against the risk of institutions that are "too big to fail" and that would saddle ordinary Americans with the cost of a bailout the next time they get in trouble, a senior Federal Reserve official said on Wednesday.

"We recommend that TBTF (too-big-to-fail) financial institutions be restructured into multiple business entities," Richard Fisher, president of the Dallas Federal Reserve Bank, told an audience at the National Press Club in Washington.

Critics say Dodd-Frank did not go far enough, including several Fed officials who, like Fisher, want the biggest banks reined in.

Fed Governor Daniel Tarullo in October suggested capping the size of banks according to their proportion of U.S. gross domestic product and said that would require Congress to write new laws. But Fisher did not think dictating how big banks could grow was the right course.

"I'm a little reluctant just given my philosophical bent to artificially engineer size," he said, arguing that markets would do a better job of making that judgment.

The outspoken Texan policymaker, blaming such "behemoth" firms for massive bad bets on the U.S. housing market at the root of the crisis and subsequent taxpayer bank bailout, said the Fed should protect their core commercial lending operations -- and nothing else.

He identified 12 "megabanks" with assets of over $250 billion as too big to fail.

"Only the resulting downsized commercial banking operations, and not shadow banking affiliates or the parent company, would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window," Fisher said.

The 12 "megabanks" Fisher identified together account for 69 percent of all U.S. banking assets, but represent only 0.2 percent of the country's 5,600 banks.

"The 12 institutions ... are candidates to be considered TBTF because of the threat they could pose to the financial system and the economy should one or more of them get into trouble," he said.

He did not name them all, but showed a slide displaying the names of five top U.S. banks: JPMorgan Chase , Bank of America , Goldman Sachs , Citigroup and Morgan Stanley .

Fisher said he had received support from lawmakers on both sides of the aisle for his views, which the Dallas Fed has been pressing for over a year, and had even heard from famed dealmaker Sandy Weill, who said he agreed with Fisher.
Issues and Concerns

My first concern is they do not do this at all. My second concern is they do it wrong, leaving loop-holes all over the place as happened with Dood-Frank. They could also target size alone rather than operations.

Glass-Steagall provided physical walls of separation that have since been rescinded. Moreover, banks should be banks not hedge funds.

Much of what Goldman Sachs does is not banking at all. The legislation should not consist of some arbitrary size limit, but rather provide walls of separation and limit banks to be banks.

Of course the real problem here is fractional reserve lending that enables banks to supersize at will, but don't expect that to be fixed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

The "Extra-Value" Horse-Burger

Posted: 17 Jan 2013 02:37 PM PST

I don't know about you, but I will no longer buy plastic tubes (that you cannot see through) supposedly containing ground chuck.

I tried tubes of beef twice, but the product certainly looked different and was ground much finer than beef that comes in a normal package, in which you can actually see the color and texture.

I would roughly describe the appearance of the product I bought as "compressed red paste".

I bring this issue up because of a story from the UK about what has been found inside prepackaged "Everyday Value" frozen burgers.

Please consider Tesco's U.K. Revival Hit as Horse DNA Found in Burgers.
Tesco Plc (TSCO)'s efforts to win back U.K. shoppers were dealt a blow after the discovery of horse DNA in some beef products caused the U.K.'s largest grocer to remove them from stores and prompted a barrage of negative publicity.

The burgers that were withdrawn from stores in the U.K. and Ireland were own-brand products, an area that Tesco has been focusing on as cash-strapped shoppers seek cheaper alternatives to big brands. Chief Executive Officer Philip Clarke last year rebooted the company's cheapest own-label range, dubbing it Everyday Value, and promising a focus on quality. That's part of his 1 billion-pound ($1.6 billion) investment program aimed at regaining customers as discounters such as Aldi and upscale chains like Waitrose erode its still-dominant market share.

The U.K.'s Food Standard Agency said it was investigating the contamination, including tracing the source of the horse and pig DNA and considering legal action. The agency will also start a U.K.-wide study of food authentiticity in processed meat products like burgers, according to the statement on its website.

Tesco withdrew two frozen beef burger products from stores following tests by the Food Safety Authority of Ireland. The Irish body said yesterday that about 37 percent of the beef burger products it examined tested positive for horse DNA, while 85 percent showed pig DNA. They listed Tesco as one of the retailers that sold the products, along with Aldi, Lidl, Iceland Foods and Dublin-based Dunnes Stores.

One Tesco product contained 29 percent horsemeat relative to the beef content, according to the Irish safety authority, which said the levels in most samples it tested were "very low."

Alan Reilly, chief executive of the Irish agency, said the beef doesn't pose any public health concerns. There is no clear explanation for the presence of the horse DNA, he said.
No Clear Explanation?!

The CEO says there is no clear explanation. Really? Please be serious. The most likely explanation is someone (either Tesco or a Tesco supplier) used a blend of horse meat and beef because they thought they could get away with it.

Even if it was an "accident" it certainly implies contamination, carelessness, and improper cleaning of grinders used for multiple purposes.

Those are the only two realistic possibilities. I leave it to the reader to decide which one is worse.

I do not imply the same thing is happening in the US. However, all things considered, I refuse to buy a product labeled as ground beef, that you cannot even see, and upon opening looks like red paste.

Addendum:

Reader "JB" writes ...
The term for this is meat adulteration. This can be serious for instance if beef is adulterated with pork. People tend to eat their beef rarer than their pork and adulteration could expose people to parasites that are not killed because the meat is not cooked enough to kill the parasites. I do not know about horse meat but generally think the risk is less than having a product adulterated with pork.

I never eat ground meat unless I am sure I know where it comes from. I do not ever eat any ground meat less cooked than medium because the grinding process will grind contaminates through out the product. This is different than a steak where contaminate will only be on the surface.

I rarely ever eat anything in a restaurant made with grown beef because it could include pink slime which is a process used to remove so called meat products off of by products that use to go to the rendering plant. The process exposes the meat to various chemicals like ammonia that are then removed else where in the processing.

PS -- You generally get what you pay for and the taste of the product usually reflects it. I have worked in the high end grocery store businesses and I can immediately taste the difference even when people have attempted to confuse me.
Addendum II: "JB" also wonders how much DNA testing the FDA does on meat products in the US. The reason is Phenylbutazone in Horse Meat.
Sixty-seven million pounds of horsemeat derived from American horses were sent abroad for human consumption last year. Horses are not raised as food animals in the United States and, mechanisms to ensure the removal of horses treated with banned substances from the food chain are inadequate at best. Phenylbutazone (PBZ) is the most commonly used non-steroidal anti-inflammatory drug (NSAID) in equine practice. Thoroughbred (TB) race horses like other horse breeds are slaughtered for human consumption.

Phenylbutazone is banned for use in any animal intended for human consumption because it causes serious and lethal idiosyncratic adverse effects in humans. The number of horses that have received phenylbutazone prior to being sent to slaughter for human consumption is unknown but its presence in some is highly likely. We identified eighteen TB race horses that were given PBZ on race day and sent for intended slaughter by matching their registered name to their race track drug record over a five year period. Sixteen rescued TB race horses were given PBZ on race day. Thus, PBZ residues may be present in some horsemeat derived from American horses. The permissive allowance of such horsemeat used for human consumption poses a serious public health risk.
I do not know enough about that issue to comment on how serious a threat that is. I offer the article for purpose of discussion.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Philadelphia Fed Solidly in Contraction; Unwarranted Future Optimism; 3-Month Moving Average Suggests Recession; Hiring Plans Collapse

Posted: 17 Jan 2013 11:00 AM PST

Inquiring minds are digging into the Philadelphia Fed Manufacturing Survey for January 2013.

Business outlook Survey, Current and 6 Months From Now

Philadelphia Fed Business Outlook SurveyJanuary vs. DecemberSix Months From Now vs. January
Dec IndexIncreaseNo ChangeDecreaseJan Index Dec IndexIncreaseNo ChangeDecreaseJan Index
What is your evaluation of the level of general business activity? 4.6 24.4 45.4 30.2 -5.8 23.7 42.9 38.1 13.8 29.2
New Orders 4.9 26.8 42.2 31.1 -4.3 28.3 45.1 36.1 12.5 32.5
Shipments 14.7 26.0 41.2 25.6 0.4 28.0 49.1 35.4 10.2 38.9
Unfilled Orders -2.0 12.2 70.4 13.2 -1.0 2.7 13.3 64.7 10.4 2.9
Delivery Times -6.0 8.5 73.4 10.5 -2.0 2.5 6.0 71.3 14.4 -8.5
Inventories -7.8 9.1 74.4 15.6 -6.5 -2.5 18.9 50.8 21.2 -2.3
Prices Paid 23.5 20.1 71.0 5.4 14.7 45.8 38.0 51.2 3.7 34.3
Prices Received 12.4 7.9 83.0 9.0 -1.1 25.6 28.9 57.8 7.2 21.7
Number of Employees -0.2 10.6 70.5 15.8 -5.2 11.2 22.2 59.8 11.6 10.7
Average Employee Workweek 0.4 9.1 72.5 17.4 -8.3 14.4 19.9 63.2 11.0 8.9
Capital Expenditures -- -- -- -- -- 10.4 23.3 50.7 17.3 6.0


Observations

  • The business conditions index is solidly in the red following an increase in December
  • New orders are in contraction
  • Prices received is in contraction
  • Shipments are treading water
  • The only component solidly in the green is prices paid. This is indicative of a margin squeeze on producers who cannot pass on costs.


Unwarranted Future Optimism

Please note the current index is -5.8 but future expectations rose from 23.7 to 29.2. That rise is indicative of unwarranted rampant optimism that will not pan out. Here's five reasons.

  1. The economy is slowing already and payroll tax hikes will subtract .8% or more from GDP. 
  2. Cuts from sequestration (probably minimal but possibly not) will also subtract from GDP.  
  3. GDP is barely treading water already (see Global PC Shipments Decline 6.4%; Best Buy Sales Flat; Toys R Us Sales Decline 4.5%; 4th Quarter GDP Estimate Reduced to .8% from 1.5%). 
  4. There is no pent-up demand for autos or much of anything else after this three-year Fed-sponsored boom.
  5. Europe is a basket case and China is slowing, so growth from exports is unlikely.


Hiring Plans Special Questions



click on chart for sharper image

Top Three Reasons for Hiring Reluctance

  1. Over 40% of respondents said they are reluctant to hire because they want to keep operating costs low. 
  2. Over 40% of respondents said they are reluctant to hire because expected growth of sales is slow. 
  3. Over 30% of respondents said they are reluctant to hire because of Obamacare

Note that only 4.1% of firms increased hiring plans while 37% decreased hiring plans. Curiously, future optimism is high, but hiring plans don't match.

I suggest hiring plans are a better indicator.

3-Month Moving Average Suggests Recession

Here is a chart from Doug Short at Advisor Perspectives that will help put the Philadelphia Fed index in proper historic perspective.



click on chart for sharper image

Doug writes "The average absolute monthly change across this data series is 7.9, which suggests that the 10.4 point change from last month carries additional significance."

I would add, the November and December data point are suspect and likely related to Obamacare and other artifacts shifting production into 2012 from 2013.

Regardless, please extend an imaginary line from -5.8 across the chart.

Adding fuel to the recession-debate fire, note that 7 out of 8 times the 3-month moving average hit that low, the economy was already in recession. The one miss was mid-1990s.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

European Car Demand Near 20-Year Low; Peugeot Workers Shut Down French Plant; GM Loses Global Car Sales Lead to Toyota Once Again

Posted: 17 Jan 2013 09:09 AM PST

GM Loses Global Car Sales Lead to Toyota Again

Auto sales have recovered in the US, but GM once again has dropped out of the top spot globally. CNN Money reports GM loses global sales title to Toyota, again.
General Motors fell to No. 2 in the global auto sales race, even as 2012 was its best year for sales since 2007.

Monday, GM (GM) announced global sales of 9.29 million vehicles. Toyota Motor (TM) hasn't announced a final sales figure for 2012, but in late December the company said it expects that global sales hit 9.7 million vehicles. Volkswagen Group (VLKAY), which includes the VW, Audi and Porsche brands, came in at No. 3 with 9.09 million vehicles, the first time the company has topped 9 million
No Pent-Up Demand in US

How much pent-up demand remains in the US? I suggest none. Rather, sub-prime auto lending is a primary driver for keeping sales somewhat robust.

European Car Demand Near 20-Year Low

It's a different story altogether in Europe where European Car Demand Near 20-Year Low.
The market for new cars in the European Union is at its weakest in nearly two decades, and recession across much of the region could dent sales further this year.

New car registrations fell more than 8% to just over 12 million last year -- the lowest total since 1995, the European automotive industry association ACEA said Wednesday. It was the sharpest decline in demand since 1993, when Europe was again lagging the world in recovering from a global downturn.

December alone saw registrations slump 16%, the industry's weakest performance for the month since 2008.

Of the major suppliers, U.S. and French manufacturers bore the brunt. Renault's registrations fell by almost a fifth, while those for Peugeot/Citroen, General Motors (GM) and Ford (F) were down by 13%. Demand for Volkswagen (VLKAF) brands declined 1.6%.

Eurozone countries that have been hit hardest by the debt crisis have suffered the worst. Registrations in Greece collapsed by 40% in 2012, closely followed by Portugal, Cyprus and Italy, where they fell by 38%, 25% and 20% respectively.

Analysts said the situation may be even worse than the numbers suggest.

"The actual decline is much worse than the statistics would have us believe, because sales figures for the year were artificially inflated as a result of self-registrations by dealers and automakers," said Peter Fuss, senior advisory partner at Ernst & Young's Global Automotive Center.
Peugeot Workers Shut Down Plant

In France, where socialist silliness and job protection idiocy run supreme, Peugeot workers shut down plant slated to be sold.
Hundreds of Peugeot Citroen workers occupied a French factory scheduled to be sold off, largely shutting down production in a protest against planned layoffs at the struggling automaker.

The Aulnay plant near Paris has been at the center of a battle over the future of France's largest automaker. The company announced last year that it planned to cut 8,000 jobs and close Aulnay as it struggles to compete in Europe's stagnant car market. The company reported a €819 million ($990 million) loss in the first half of 2012; it will announce its full-year results next month.

On Wednesday, the CGT union said 300 workers stopped all production at the plant. The company meanwhile said around 230 were out on strike — with many more absent — and that very little work was being done.

That's a small percentage of the 3,000 people employed at Aulnay, but the union said they were able to "paralyze" the factory because most of the striking employees work in production.

"Employees at PSA Aulnay refuse to accept being laid off without anything. The false negotiations begun in November give absolutely nothing at all, the management is refusing to address the demands of the employees," a statement from the CGT said. "The striking workers demand that management restart the negotiations from the beginning."

Anne-Laure Descleves, a spokeswoman for Peugeot, said the unions stage a strike once a month and the current one was only slightly worse than others.
Union Madness

Obviously the union wants Peugeot Citroen to keep producing cars it cannot sell simply to keep a few thousand people employed.

This is the mindset of unions. It never occurs to them high wages and union work rules are two of the reasons the company cannot sell cars.

Renault Will Cut 7,500 Jobs, 17% of its French Work Force

The New York Times reports Renault, Adjusting to Europe's Declining Market, Will Cut 7,500 Jobs
France's ailing industrial sector took another blow on Tuesday when Renault said it planned to cut 7,500 domestic jobs by 2016, or about 17 percent of its French labor force, as it adjusts production capacity to the crushing downturn in the European car market.

Of the 135,000 people Renault employs worldwide, more than 44,600 work in France. Ms. Chantegay said the plan to reduce jobs would affect only the French work force.

Carlos Ghosn, Renault's chairman and chief executive, said on Monday at the Detroit auto show that he expected the European market to be difficult in 2013, predicting that car sales would fall about 3 percent in 2013 after contracting 8 percent in 2012.

Management, the union said, is ignoring the reality facing workers. "Instead of chemotherapy," the C.G.T. said, "management always injects cancer cells into the enterprise."
Renault's CEO Proposes Study to Determine Why Consumers Are Not Buying Cars

No doubt you are laughing right along with me in response to an inane suggestion by Renault's CEO.

When asked what governments and companies could do to address the contraction of the market in Europe, he responded "Governments should try to determine why consumers are not buying cars."

If Ghosn is serious, the board should fire him immediately.

Is it the responsibility of government to figure out why Renault and other carmaker's cannot sell cars, or is that the responsibility of carmakers?

The answer is obvious, and so is the answer to the original question.

European carmakers struggle to sell cars for the same reason sales across the board in Europe are under pressure:

Union wages, union work rules, inane government work rules on top of union work rules, high VAT and income taxes, EU rules and regulations on everything, demographics of the aging population, high youth unemployment (primarily as a direct result of inane work rules) and the Eurozone nannystate in general all contribute to poor sales.

No doubt, I have left something out. However, I am certain the above items encompass something on the order of 98% of the answer.

I provide this valuable service at no cost to the French taxpayer and also to Renault's CEO, lest the French government actually waste taxpayer money on a commissioned study (no doubt to come up with the wrong set of answers).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Social Security Cliff in Sight; Retirees Will Outlive Trust Fund; Ramifications of Nonmarketable IOUs and Privatization

Posted: 17 Jan 2013 12:24 AM PST

In response to my post Making Social Security Actuarially Sound in a Business-Friendly Manner I have been exchanging emails and phone conversations with Jed Graham at Investor's Business Daily.

Jed thinks benefit cuts will happen, and I agree. However, Social Security cuts are considered the "third rail" in politics.

If you are not familiar with the term, it means anyone espousing cuts cannot be elected.

Retirees Will Outlive Trust Fund

Graham's current position on the viability of Social Security can be found in his January 14 article New Social Security Retirees Will Outlive Trust Fund
For the first time since Social Security's cash crisis in 1983, the program can't afford to pay full benefits for its youngest crop of new retirees through life expectancy, government data show.

The hastening of the Social Security Trust Fund's demise to 2033 means that workers just becoming eligible for Social Security at age 62 face steep future benefit cuts if they live to the average life expectancy, now about 84.

Those abrupt benefit cuts of about 25% a year for today's 62 year olds and workers nearing the early retirement age would come at an especially bad time — late in life when savings have dwindled and health care bills are on the rise.

Old Contract Invalid

While the trust fund's nonmarketable Treasuries — really IOUs from one branch of government to another — have no value to offset the cost of benefits, they provide Social Security the legal authority to run cash deficits until they're spent.

Under current law, a worker who just turned 62 would face a 25% benefit cut once the trust is spent in early 2033.

Workers now 55 would, on average, lose two full years' worth of benefits, the equivalent of a 9.2% cut in lifetime benefits.

Cliff Now in Sight



Nonmarketable IOUs

Jed and I are 100% in agreement that the alleged "trust fund" is nothing more than "nonmarketable Treasuries — really IOUs from one branch of government to another" that have no real value.

As Jed states, those IOUs provide the Social Security administration the "legal authority to run cash deficits until they're spent."

The key points are as follows: There is no lock box, there is no fund,  there is a deficit, and IOUs in a pretend piggy bank are not the same as marketable bonds.

Amusingly, I got into an exchange with a reader just a few days ago over the IOU concept. Reader Elliot wrote "You don't seem to understand bonds. They're just an IOU. The Chinese give us $$, we give them an IOU, and then we spend the dollars."

Clearly, one major difference is the trust fund has nonmarketable IOUs, not marketable bonds.

I responded to Elliot that "You cannot owe yourself money and it's even more ridiculous to put an IOU in a piggy bank and pretend to collect interest on it."

Elliott was not convinced. The discussion with Elliott proves that some people will continue to believe whatever nonsense they want, no matter how carefully facts are presented otherwise.

One thing I did not realize before exchanging emails with Jed Graham was that the payroll tax cut did not actually contribute to the current Social Security deficit (SS was not charged for the reductions in payroll taxes). Rather, the cuts simply added to the general deficit, funded as temporary stimulus.

Thus, the current deficit is real, not imagined, no matter how one looks at it. The payroll tax cut did not temporarily overstate the problem.

Simply put, Social Security is already insolvent if one ignores imaginary interest deposited into an imaginary piggy bank. Only on a pretend basis, by counting interest owed to oneself in a piggy bank that does not even exist, is Social Security solvent.

Elliott's of the world aside, Jed points out the IOU pretense is universally understood by the CBO, by the administration, etc. Unfortunately, Congress ignores the problem for political reasons.

Clearly, something needs to be done to shore up the system. And since something has to give, by definition it will. I outlined six possibilities, none of which has universal appeal. 

Six Possible Ways to Make Social Security Actuarially Sound

  1. Raise retirement age
  2. Raise or eliminate the cap on payroll taxes
  3. Cut benefits
  4. Collect Social Security on personal income
  5. Implement a Tiered Cap structure
  6. Means Testing


All of the above are likely as noted in Making Social Security Actuarially Sound in a Business-Friendly Manner

For more on Social Security trends please see ...


Jed Graham Reflections

Jed invited me to post a few of his personal thoughts. Those thoughts are not necessarily reflective of the opinions of Investor's Business Daily,  nor are they reflective of mine.

However, for the sake of further discussion ...

Jed wrote the 2010 book A Well-Tailored Safety Net. He proposed a new approach to reform called "Old-Age Risk-Sharing".

Under Jed's approach, the maximum benefit cut would come in the first year of retirement; cuts would be progressively smaller for lower earners and the cuts would phase out over 20 years to preserve a robust safety net in very old age.

You can read about his views in his post What I Told Obama's Fiscal Commission About Social Security.

Mish Reflections

In the above link, Jed writes ... "If we want a Social Security system that maintains the promise of income security late in life, additional benefit cuts that apply in very old age should be off the table"

I have to ask: Is that want we want? My second question is: If so, how do we expect to pay for it?

It's far easier to come up with a want list, than a means to pay for it. People always want things, unless and until they have to accept tax hikes to pay for them.

Personal Belief

The income redistribution philosophy of tax hikes to support Social Security goes against my own Libertarian beliefs of minimalist government.

Cuts Coming, Regardless of Beliefs

However, and regardless of my viewpoint (or yours), cuts of some kind are without a doubt actuarially necessary as fewer workers support more and more retirees.

The only way cuts are remotely possible now would be to combine cuts with tax hikes. Politically speaking however, Democrats won't accept cuts, and Republicans won't accept tax hikes.

Yet, if cuts eventually come (and demographically speaking they must), then perhaps the phased-in approach suggested by Jed is a pragmatic starting point for discussion, whether or not one believes the stated goal of "guaranteed income security" is socialist silliness.

Once again, I am attempting to separate my own personal beliefs from something that may be more politically feasible.

Two Sure Things

  • The path we are on is not sustainable
  • Burying one's head in the sand because Social Security is the third rail only makes the problem worse

Safety Net Discussion

I have spent an amazing amount of time on this post already, probably 14 hours. I thought I finished yesterday but I didn't.

Yesterday evening I realized I did not fully address the concept of what constitutes a "safety net", and how much it would take for the average worker to accumulate one.

Jed has done quite a bit of research on the subject, so I decided to ask him.

Jed responded...

"I think since we are talking the bare bones safety net w/ SS that people can't do without, it makes sense to use the risk-free (some might argue with "risk-free") Treasury rate. Rule of thumb is that to overcome a 10% benefit cut, an average earner (now about $45k a year) has to save 1% of wages (assuming Treasury returns and a lifetime annuity). For new workforce entrants facing a ballpark 25% benefit cut, as in the Romney plan, that means roughly 2.5% of annual wages. "

The key words are "average earner". In a phone conversation with Jed, he acknowledged things are not so simple. Someone making minimum wage needs to save far more on a percentage basis. Those making $100,000 a year need to contribute far less on a percentage basis.

For his safety-net calculations, Jed uses the Social Security Administration's risk-free "real" rate, projected to be 2.9% in 2022 and beyond.

Currently, the real return on 10-year treasuries is negative. The "real" return on 30-year treasuries is currently about 1%. I suggest real returns will not get back to the long-term average for a long time, perhaps longer than many social security recipients live.

If "real rates" are indeed lower than the Social Security administration projects, then required savings rates will rise.

The problems do not stop there because we are not starting from scratch. What about the "average earner" who is now age 40?

Jed notes such a person may need to contribute 5% of his wages for a minimal return.

That still does not cover all the bases because it assumes everyone is funding their own plan.

Is self-funding the new idea?  Or is the original intent of Social Security (minimum retirement income assistance regardless of how much one contributed) still intact?

Regardless of your answer, those making minimum wage will never be able to meet a reasonable "safety net" goal, on their own accord.

I do not champion the idea that Social Security is a "right". It isn't. Rather, I simply state the pure mathematics of the setup.

Funding Your Own Way

I have a close friend who objected to "Means Testing" which was point six of Six Possible Ways to Make Social Security Actuarially Sound, as listed above.

She proposed that what she puts into SS should be hers or her heirs, and no one else's.

Ideally, I agree.

However, if her money is hers (and your money is yours) let me ask a simple question: Does government belong in the "income guarantee" business at all (taking your money only to return some portion of it later)?

If so, why? If not, then let's stop Social Security altogether.

It's certainly a debate worth having, and the answer determines whether or not there should be any "safety nets".

Privatizing Social Security

In a follow-up phone call I discussed privatization of Social Security with Jed. He was once in favor of partial privatization, but that was when Social Security was running a surplus. He is not in favor of it now.

Let's discuss this from the point of view of my friend who states "What I put into SS should be mine, no one else's".

Privatization Ramifications

To create a  real "lock box", not an imaginary lock box, with imaginary interest, we need to privatize Social Security, not send money to Washington to be confiscated for whims of the moment.

Assuming that is politically feasible, and ignoring all the people already fully committed to the current system (those retired), as well as those half-way in (those in their 40's), what are the ramifications of privatization?

Before answering, please note that Social Security revenues are in practice used for general expenditures. Simply put, if payroll taxes were diverted to funding private plans, the deficit would soar.

Such a step would require massive tax hikes or massive cuts across the board somewhere (I would vote for massive cuts across the board, especially cuts in military spending).

Then we would still need to do something about partial funding and those already retired. Finally we would need to discuss limitations on those who want to tap their SS funds before retirement.

For a discussion on tapping retirement money, please consider Over 25% of 401Ks Tapped to Pay Current Bills; Dead-Fish Housing Assets; Walking Away Yet Again.

Quickly you can see we are back to the basic question "Whose money is it anyway, and why should government dictate what I do with it?"

Frank Discussion of the Issues is Needed

Regardless of your point of view on what should or should not be done (Jed has his ideas, I have mine, my friend has hers, and you have yours), it's long overdue for a frank discussion of the issues.

Solutions can only happen following admission of the problems. The starting point for discussion is simple admission that Social Security and Medicare are both insolvent, that promises have been made that cannot possibly be kept.

Without a doubt the country needs a frank discussion of "safety nets" and how they should be funded, as well as frank discussions on Medicare and healthcare rationing.

Unfortunately, few if any politicians are willing to admit the truth or to have those discussions, for fear of losing votes.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Damn Cool Pics

Damn Cool Pics


Ultimate Fails Compilation 2012 [Video]

Posted: 17 Jan 2013 07:10 PM PST



 People love watching videos of other people failing at something, whether it be failing at life or failing at the reason they were making the video in the first place, then post the outtake. We do because it makes us feel better about ourselves.


Baguetting is the New Planking

Posted: 17 Jan 2013 06:22 PM PST

We all remember planking, then owling and then I did a post on milking – we now have baguetting. A group of celebrities and comedians have launched a unique internet craze of posting pictures of themselves creatively posing with baguettes in their everyday life. Supplementing the loafs of bread for everyday objects.
















































































Via baguettemenots

Facemath - Famous Faces Come Together

Posted: 17 Jan 2013 03:02 PM PST

When famous faces come together it's called facemath.




























































Via facemath

Dog Owners Wearing Clothes Made From Their Dog's Fur

Posted: 17 Jan 2013 02:15 PM PST

These aren't just lovely portraits of people posing with their pets, but look a little closely and you'll see that the owners are wearing sweaters and vests that resemble the fur of their dogs. And they should because they were literally made from them.

Below is a series of photographs (an ongoing project) by photographer Erwan Fichou of people posing with their beautiful dogs, sporting canine couture... actual sweaters and vests made from the fur of their own pet dogs.



















How To Make Money Online [Infographic]

Posted: 17 Jan 2013 12:08 PM PST

The first thing you need to make money online is a website. Your website is the cornerstone to your online business. It's important you get a website you're able to edit yourself. If you hire a web designer you'll spend a lot of money and you'll never be able to react to the changing market conditions fast enough. You can use a free website builder like WebStarts.com.

Click on Image to Enlarge.
Via: WebStarts