David Kirkpatrick

March 16, 2010

Social Security …

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 4:03 pm

… a long national nightmare begins. Without reform, medical care will eventually bankrupt the nation and severely cripple businesses, both large and small, long before. Social Security is that other entitlement program bugaboo, and in a moment of just terrible timing, the chickens have finally come to roost with the program — this year Social Security did not collect enough payroll taxes to cover benefit payments for the first time in over twenty years.

So what, you say? Maybe not so much.

From the link:

For more than two decades, Social Security collected more money inpayroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg’s municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn’t be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

Social Security’s shortfall will not affect current benefits. As long as the IOUs last, benefits will keep flowing. But experts say it is a warning sign that the program’s finances are deteriorating. Social Security is projected to drain its trust funds by 2037 unless Congress acts, and there’s concern that the looming crisis will lead to reduced benefits.

“This is not just a wake-up call, this is it. We’re here,” said Mary Johnson, a policy analyst with The Senior Citizens League, an advocacy group. “We are not going to be able to put it off any more.”

March 19, 2009

The Fed’s printing money

This move could really hurt the dollar, and is seen by many (most?) economists as a true “nuclear option.” Make sure you’re belted in — this ride ain’t over yet.

From the link:

Expectations of Fed buying raised the prices, and consequently pushed down the interest rate yields, on mortgage-backed securities as well as Treasury bonds, which were included in the deal. Stocks rose slightly as well, while the dollar fell on inflation worries. The yield on the benchmark 10-year Treasury note plummeted one-half percentage point, to around 2.5%.

“The good news is that the Fed is clearly being a lot more aggressive,” said Desmond Lachman, a resident fellow at the American Enterprise Institute. “The bad news is that I think it reflects their assessment that the economy is a whole lot weaker than they thought it would be.”

The Fed did not cut short-term interest rates because it can’t—they’re already at virtually zero. The post-meeting statement said the rate-setting Federal Open Market Committee “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

The FOMC statement was full of surprises, albeit in the Fed’s typical bland language. The Fed committed itself to buying another $750 billion this year in mortgage-backed securities issued by “agencies” like Fannie Mae and Freddie Mac, on top of the $500 billion it had already committed to buying. It doubled to $200 billion the amount of agency debt it will buy this year.

And in a surprising change of direction, the Fed said it will buy $300 billion of longer-term Treasury securities. Up until now, Federal Reserve Chairman Ben Bernanke had said there was no need for the Fed to buy Treasuries since there was a strong market for them already. The Fed’s new thinking seems to be that it can’t hurt to try a little Treasury buying in hopes that the money will trickle down to non-Treasury securities. It said the goal of the Treasury purchases is “to help improve conditions in private credit markets.”

December 18, 2008

The Fed’s toolbox …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 2:57 pm

isn’t totally empty, even though the overnight funds rate is now effectively zero. Of course, we can always just the printing presses running 24/7 at the mint. (Before I get it from other fiscal conservatives, just kidding there on the last one.)

From the link:

When the Federal Reserve reduced its target for the federal funds rate to virtually zero this week, it appeared to have run out of room to attempt any further monetary stimulus for the economy.

That’s not really the case, and it is why the Fed statement stressed the wide-ranging open market operations it will use to inject money into the economy and drive down interest rates along the entire interest-rate curve, not just at the short end. The Fed will directly buy mortgages to flood that market with much-needed liquidity, and it will buy long-term Treasury bonds to drive down yields.

But just as the absence of interbank lending has rendered the federal funds target fairly useless as a tool, so too has it robbed central bank money of much of its impact, because there is no multiplier effect. That whole credit mechanism is broken for the time being, which means central bank money is going into the economy directly, without the amplification of bank lending on the basis of fractional reserves.