Your Pension had been diluted very, very fast…

Posted in Blogroll on April 4, 2009 by marcleon009

According to the following post from‘s Free exchange blog, “The Day of Reckoning,” that could prove to be an unattainable goal for many Americans.

FIRST the good news: many American baby boomers have been saving enough for retirement. So says a paper by John Karl Scholz and Ananth Seshadri. Rather than look at replacement rates (the ratio of retirement to working income) they measure how much wealth you need to fund desired consumption in retirement.

Now the bad news: that estimate uses data from 2004. The paper measures wealth using stocks, bonds, mutual funds, defined contribution pension assets, and housing wealth. We know how that went.

Housing wealth makes up the largest share of most American’s investment portfolios. According to a 2007 survey of consumer finances, the other large piece of wealth comes from assets in private pension accounts. These tend to be heavily invested in equities. About half of 401(k)/403(b) participants over the age of 60 invested more than 50% of their account in equity.

Even if baby boomers dutifully saved and were on track for a comfortable retirement two years ago, they’ve taken a big hit. They will have to work longer, but it will be a very long time before the value of their home and stock portfolio reaches 2007 levels.

The fall in personal assets means Americans will find themselves more dependent on state benefits. This incredibly bleak CEPR paper finds that the real estate crash will leave many Americans almost totally reliant on Social Security. Of course, the cohort they use is between the age of 45 and 54. People closer to retirement tend to have more equity in their homes. Also the study assumes people sell their homes in 2009. It does not allow for the option of staying in your house and not paying rent to someone else. In that respect your primary residence pays you a dividend. A new retiree may opt to not sell their house at the bottom of the market and continue to receive dividend payments instead. The same can be said of their stock portfolio. But, even under the most favourable assumptions, it’s a pretty ugly situation.

The administration is hoping to cut entitlement spending, but at least for baby boomers, this does not look realistic. The Great Depression spawned Social Security in an effort eliminate old-age poverty. It will be interesting to see what happens to the programme now.

To make matters worse, as Mish’s Global Economic Trend Analysis writes in “Social Security: There Is No Trust; There Is No Fund,” many people will eventually find that they don’t even have a government-sponsored safety net to fall back on.

Social Security is back in the limelight where once again its problems will no doubt be ignored.

Please consider Recession Puts a Major Strain On Social Security Trust Fund.

The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund’s annual surplus is forecast to all but vanish next year — nearly a decade ahead of schedule — and deprive the government of billions of dollars it had been counting on to help balance the nation’s books.

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

Obama’s $9.3 Trillion Budget Deficit

Inquiring minds are pondering Obama budget could bring $9.3 trillion in deficits.

President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush’s presidency, congressional auditors said Friday.

The new Congressional Budget Office figures offered a far more dire outlook for Obama’s budget than the new administration predicted just last month — a deficit $2.3 trillion worse. It’s a prospect even the president’s own budget director called unsustainable.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends or else pare back his agenda.

By CBO’s calculation, Obama’s budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.

Worst of all, CBO says the deficit under Obama’s policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.

Most disturbing to Obama allies like Senate Budget Committee Chairman Kent Conrad, D-N.D., are the longer term projections, which climb above $1 trillion again by the end of the next decade and approach 6 percent of GDP by 2019.

The worsening economy is responsible for the even deeper fiscal mess inherited by Obama. As an illustration, CBO says the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House. That would equal 13 percent of GDP, a level not seen since World War II.

Trust Fund Projections

click on chart for sharper image

Let’s return to the ridiculous claim made by analysts: Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 — so long as the Treasury repays its debts.

For starters it is clear to see the 2041 figure is nonsense. And given that every cent of the fund has been spent, exactly how is the treasury supposed to repay that fund in light of $9.3 trillion (with a T) budget deficits when the “surplus” is a mere $16 Billion (with a B)?


Nobel Economist Ed Prescott: “Don’t Subsidize Inefficiency…. Let These Businesses Go Bankrupt. They Gambled, They Lost. That’s Part Of Life”

Posted in Blogroll on April 4, 2009 by marcleon009

Nobel economist Ed Prescott says:

Don’t subsidize inefficiency. Cut tax rates to get people to work more. This financial stuff is much ado about nothing. I don’t see any reason for the taxpayers to bail out Goldman Sachs in a roundabout way. Let these businesses go bankrupt. They gambled, they lost. That’s part of life.

Numerous economists agree with Prescott. See this, this, this, this and this.

Useful Idiots in Modern America

Posted in Blogroll on April 4, 2009 by marcleon009

Today, in modern America, there are useful idiots on the right who blindly support anyone who attacks Obama because Obama is a so-called “liberal”.

Equally, there are useful idiots on the left who blindly support Obama and try to defend his bailouts of the financial giants, his escalation of the Afghanistan war, his defense of Bush administration torturers and war criminals, and other indefensible acts because they think he is the great liberal savior.

Stalin’s useful idiots – like Robeson – were blind to the reality of what the communist tyrants were actually doing. They were too caught up in ideas about what was happening, instead of looking at the effect of the actual policies being carried out.

Those on both the left and the right who fall for the rhetoric of the Democratic and Republican party leaders are useful idiots who are failing to look at the effect that those parties’ policies are actually having.

Indeed, the Republican and Democratic parties have been promoting virtuall identical economic policies, which is why economists from the left and the right have slammed both Bush/Paulson and Obama/Geithner’s actions.

Failing to see that the financial elite are controlling the agenda of both parties is a form of useful idiocy.

The US Have Committed 12, 8 Trillions on behalf of American taxpayers

Posted in Blogroll on April 4, 2009 by marcleon009

The following table details how the Fed and the government have committed the money on behalf of American taxpayers over the past 20 months, according to data compiled by Bloomberg.


                                  --- Amounts (Billions)---
                                   Limit          Current
Total                            $12,798.14     $4,169.71
 Federal Reserve Total            $7,765.64     $1,678.71
  Primary Credit Discount           $110.74        $61.31
  Secondary Credit                    $0.19         $1.00
  Primary dealer and others         $147.00        $20.18
  ABCP Liquidity                    $152.11         $6.85
  AIG Credit                         $60.00        $43.19
  Net Portfolio CP Funding        $1,800.00       $241.31
  Maiden Lane (Bear Stearns)         $29.50        $28.82
  Maiden Lane II  (AIG)              $22.50        $18.54
  Maiden Lane III (AIG)              $30.00        $24.04
  Term Securities Lending           $250.00        $88.55
  Term Auction Facility             $900.00       $468.59
  Securities lending overnight       $10.00         $4.41
  Term Asset-Backed Loan Facility   $900.00         $4.71
  Currency Swaps/Other Assets       $606.00       $377.87
  MMIFF                             $540.00         $0.00
  GSE Debt Purchases                $600.00        $50.39
  GSE Mortgage-Backed Securities  $1,000.00       $236.16
  Citigroup Bailout Fed Portion     $220.40         $0.00
  Bank of America Bailout            $87.20         $0.00
  Commitment to Buy Treasuries      $300.00         $7.50
  FDIC Total                      $2,038.50       $357.50
   Public-Private Investment*       $500.00          0.00
   FDIC Liquidity Guarantees      $1,400.00       $316.50
   GE                               $126.00        $41.00
   Citigroup Bailout FDIC            $10.00         $0.00
   Bank of America Bailout FDIC       $2.50         $0.00
 Treasury Total                   $2,694.00     $1,833.50
  TARP                              $700.00       $599.50
  Tax Break for Banks                $29.00        $29.00
  Stimulus Package (Bush)           $168.00       $168.00
  Stimulus II (Obama)               $787.00       $787.00
  Treasury Exchange Stabilization    $50.00        $50.00
  Student Loan Purchases             $60.00         $0.00
  Support for Fannie/Freddie        $400.00       $200.00
  Line of Credit for FDIC*          $500.00         $0.00
HUD Total                           $300.00       $300.00
  Hope for Homeowners FHA           $300.00       $300.00
he FDIC’s commitment to guarantee lending under the
Legacy Loan Program and the Legacy Asset Program includes a $500
billion line of credit from the U.S. Treasury.

U.S. Spending 100% of GDP on Bailouts and Related Programs

Posted in Blogroll on April 4, 2009 by marcleon009

As I have previously pointed out, Paul Krugman is calling for the U.S. and Europe to spend an amount equal to 4% of their gross domestic products on the financial crisis.

Today, Bloomberg notes:


The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

In other words, instead of spending 4% of GDP, the U.S. is committing to spending close to 100%. This dwarfs spending during the New Deal: 














For those who argue that much of the trillions being spent today is in the form of loans and guarantees, I would argue that taxpayers will never see most of this money ever again. It is spent, and gone. Indeed, most of the financial giants which the loans were made to are insolvent and will be out of business in a couple of years.

Mark my words, the chart above will end up showing that spending will soon exceed 100% GDP.

A new Reserve Currency will be reality sooner or later

Posted in Blogroll on April 4, 2009 by marcleon009

You’ve heard that the IMF is considering printing hundreds of billions of dollars worth of its own currency – called “Special Drawing Rights” or SDRs. Currently, the SDR is pegged to four currencies: the dollar, yen, euro and sterling.

You’ve heard that China’s central bank proposed making SDRs the world’s reserve currency.

You’ve likely heard that Tim Geithner has said that he supports the IMF’s proposal to issue large amounts of SDRs (and that some people say that Geithner also supports making SDR the world’s reserve currency).

You may even have heard that Russia also backs making the SDR the world’s reserve currency, and that Russia wants the SDR to be pegged to a basket of yuans, rubles and gold.

But you probably have not heard that: READ MORE HERE Continue reading

AIG Paid Full Amount to Foreign CDS Counterparties, But Demanded 70% Haircut of U.S. Counterparties

Posted in Blogroll on April 4, 2009 by marcleon009

Congressional Committee on Financial Services:

In a stunning development, Representatives Frank and Bachus are alleging that AIG might have paid the full amount of credit default swap contracts to foreign counterparties, but demanded that U.S. counterparties take a haircut of up to 70%:

AIG Payments

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I’m glad that haircuts were given. But if only American companies are taking haircuts – and not foreign companies – that is blatantly unfair, since the money came from American taxpayers.
Source:George Washington’s Blog