Had a surge of new friends join us since the mid year.
It’s been quite a ride in the markets especially Crypto wise.
But first some FEAR…Courtesy of Sovereign Man. Here she goes.. don’t be afraid.
A few weeks ago the Board of Trustees of Social Security sent a formal letter to the United States Senate and House of Representatives to issue a dire warning: Social Security is running out of money.
Given that tens of millions of Americans depend on this public pension program as their sole source of retirement income, you’d think this would have been front page news…
… and that every newspaper in the country would have reprinted this ominous projection out of a basic journalistic duty to keep the public informed about an issue that will affect nearly everyone.
But that didn’t happen.
The story was hardly picked up.
It’s astonishing how little attention this issue receives considering it will end up being one of the biggest financial crises in US history.
That’s not hyperbole either– the numbers are very clear.
The US government itself calculates that the long-term Social Security shortfall exceeds $46 TRILLION.
In other words, in order to be able to pay the benefits they’ve promised, Social Security needs a $46 trillion bailout.
That amount is over TWICE the national debt, and nearly THREE times the size of the entire US economy.
Moreover, it’s nearly SIXTY times the size of the bailout that the banking system received back in 2008.
So this is a pretty big deal.
More importantly, even though the Social Security Trustees acknowledge that the fund is running out of money, their projections are still wildly optimistic.
In order to build their long-term financial models, Social Security’s administrators have to make certain assumptions about the future.
What will interest rates be in the future?
What will the population growth rate be?
How high (or low) will inflation be?
These variables can dramatically impact the outcome for Social Security.
For example, Social Security assumes that productivity growth in the US economy will average between 1.7% and 2% per year.
This is an important assumption: the faster US productivity grows, the faster the economy will grow. And this ultimately means more tax revenue (and more income) for the program.
But -actual- US productivity growth is WAY below their assumption.
Over the past ten years productivity growth has been about 25% below their expectations.
And in 2016 US productivity growth was actually NEGATIVE.
Here’s another one: Social Security is hoping for a fertility rate in the US of 2.2 children per woman.
This is important, because a higher population growth means more people entering the work force and paying in to the Social Security system.
But the actual fertility rate is nearly 20% lower than what they project.
And if course, the most important assumption for Social Security is interest rates.
100% of Social Security’s investment income is from their ownership of US government bonds.
So if interest rates are high, the program makes more money. If interest rates are low, the program doesn’t make money.
Where are interest rates now? Very low.
In fact, interest rates are still near the lowest levels they’ve been in US history.
Social Security hopes that ‘real’ interest rates, i.e. inflation-adjusted interest rates, will be at least 3.2%.
This means that they need interest rates to be 3.2% ABOVE the rate of inflation.
This is where their projections are WAY OFF… because real interest rates in the US are actually negative. [No better for the UK! and most other places!…Francis]
The 12-month US government bond currently yields 1.2%. Yet the official inflation rate in the Land of the Free is 1.7%.
In other words, the interest rate is LOWER than inflation, i.e. the ‘real’ interest rate is MINUS 0.5%.
Social Security is depending on +3.2%. [Close? Compound a more realistic number and see what shortfall you get]
So their assumptions are totally wrong.
And it’s not just Social Security either. [UK & EU’s books are similarly turgid, in most of the same ways, Demographics, Growth/productivity and REAL Rates]
According to the Center for Retirement Research at Boston Collage, US public pension funds at the state and local level are also underfunded by an average of 67.9%.
Additionally, most pension funds target an investment return of between 7.5% to 8% in order to stay solvent.
Yet in 2015 the average pension fund’s investment return was just 3.2%. And last year a pitiful 0.6%.
This is a nationwide problem. Social Security is running out of money. State and local pension funds are running out of money.
And even still their assumptions are wildly optimistic. So the problem is much worse than their already dismal forecasts.
Understandably everyone is preoccupied right now with whether or not World War III breaks out in Guam.
But long-term, these pension shortfalls are truly going to create an epic financial and social crisis.
It’s a ticking time bomb, and one with so much certainty that we can practically circle a date on a calendar for when it will hit.
There are solutions.
Waiting on politicians to fix the problem is not one of them.
The government does not have a spare $45 trillion lying around to re-fund Social Security.
So anyone who expects to retire with comfort and dignity is going to have to take matters into their own hands and start saving now.
-Courtesy of Simon Black.
More Broadly folks when we take the banking, system, Bailouts, Quantitative Easing and near Zero Monetary Policy, it becomes clear that the game is up, the lights just haven’t been switched off yet.
Parts 2, 3 and 4 next to come and they bring a little hope to the alert few.