First off the July numbers...
The worrying part, is the Producer Price, which could be indicative of future pressure on retail prices.
Which briefly mention CPI-W, which is used for COLA.
My current estimate is 3.4%-3.5%. Oddly, there seems to be a lot of grousing about this should be higher, or the data is manipulated, etc. What makes it odd, is there are some that inadvertently are wishing for higher inflation, so they get a higher increase. Given the lag time, this is rather insane.
Of course, this inevitably leads to changing the way it is calculated. Typically, the CPI-E becomes part of that discussion. It would still be lagging, much the same way as CPI-W, although slightly higher... historically.
The the subject morphs into the "trust" fund. There seems to be a majority opinion that something will be done, to defer that ±22% cut in a few years.
Which brings up the next question... can anyone really do anything. Frankly, I doubt that happening. Why you might ask.
There are 3 types of treasuries. Bills, Notes and Bonds.
Notes and bonds are paid the coupon interest, every 6 months. If a $100 note or bond is issued with a coupon rate of 4%, then two dollars is paid out every 6 months. The coupon rate is set on the primary dealer market. The yields we commonly see published is from the secondary market. Hence if a 5% yield is published, then then value of that note or bond has fallen below $100, when traded. It thereby indicates that future coupon rates will be higher.
What is paid out on Notes and Bonds... goes agains the budget deficit. This added burden in debt service, will not likely ease... when those 100s of billions of dollars are added to keep social security at 100%.
Now the discussion turns to Bills, which are not paid interest, but rather more of a fee. The treasury sells a $100 treasury Bill for $98, with the guarantee of paying back $100 in 6 months. They pay they $100 by selling a $100 treasurt bill with a guarantee of paying back $102+ in 6 months. That cycle repeats.
The Notes and Bonds interest... shows up on the annual fiscal deficits. The Bills do not. The treasury bills get added to the National Debt. The national debt is rising at a faster nominal rate than the annual deficits, due to this accounting practice.
There is currenly over $8 trillion dollars of notes, with the number rising at a rapid rate.
We are on a timeline where investors will require much higher premiums to finance these debt instruments.
What I think will likely happen and the timeline... might be published at a later date.
