What is Social Security?

Quite often we hear of some group wanting to eliminate waste in social security, make adjustments to save social security, etc.

Generally speaking, most of us think of social security as that pension for old folks, with the trust funds etc. That is just part of social security. 

Social Security can be found in Title 42, Chapter 7 of the U.S. Code. There are currently, 21 sub chapters, with subchapter 2 being something called "Federal Old Age, Survivors and Disability Insurance. OASDI. That is the part we frequently refer to as social security, with trust funds. Medicare is subchapter 18, with associated trust funds. Supplemental Security Income (SSI) is within subchapter 16.

But in reality, Social Security encompasses dozens of programs, which are in the form of block grants to states, as well as budgeted appropriations for all manner of items, from CHIPS, SNAP, Food Stamps, etc. 

Here is a partial listing of such social security items...

So when someone tries to stir up trouble with the mantra of illegals, migrants, etc. are collecting social security... it's not likely to be OASDI, but could be in the form of various other programs. 

When someone attempts to scare away the seniors with proclamations that a certain group are out to get your social security... just exactly what program within social security, are they referring.

There are a variety of proposals in congress to make adjustments to "social security", but aren't spun as social security.

Recently a proposal to address the claw back issue in Medicaid got some attention. Everyone thought it a good idea. Not a mention of social security, except the bill itself stated... 

A BILL To amend title XIX of the Social Security Act to repeal the requirement that States establish a Medicaid Estate Recovery Program and to limit the circumstances in which a State may place a lien on a Medicaid beneficiary’s property. 

Of course, the term social security was not used in the media, as it would have caused a kerfuffle if the media used the term "amend social security". 

I doubt things will change, as our masters fully understand our ignorance on the matter of "social security", and thus use it... for political purposes. 

Another Look at C.O.L.A.

 

Click to Enlarge

Back in August I stated... somewhere between 8.6% ~ 9.0%. Clearly, a revision has taken place. Largely due to the continued drop in gasoline. 

If you remember the July CPI report, it stated the -7.7% gasoline number held off all the price increases in everything else. August is over and I am betting the August CPI will be -10% for gasoline. 

Of course, the C.O.L.A. is based on CPI-W, which slipped -0.1% in July and was 9.1% over the year.  -10% in gasoline would in theory... create an even lower number than -0.1%. Granted, the other stuff may be accelerating inflation wise, but I am not so sure about that. 

In any case, I suspect the CPI-W will be in the range as noted and the monthly change will be -0.3%~0.5%.

That would be stellar, except it is only gasoline and many other things like food, electricity, and heating bills are rising... going into that time of year. A lump of coal might be a welcome gift, come Christmas. (Hey, everything else has gone topsy turvy... why not?)

For the record, the C.O.L.A. announced in fall 1981 for 1982 year was 11.4%. The fall of 1982 announcement for year 1983 was 7.4%. This year's announcement should be between those two numbers.

And for the first time in a long while, there should not be much of an increase in Medicare B premiums. Mostly because we were over charged last year, but still, taking them at their word of that drug being half of last year's rise, and then they found out that drug was half the original price... we end up back to where we currently are for next year. That $60 we got over charged this year will be metered back to us this coming year. 

Is It Still Too Early to Predict C.O.L.A.? And Some Other Observations...

I've had to revise downward, my previous forecast... by quite a bit. I am okay with that, as longing for inflation to continue upward, with the hopes of a higher check in the future... seems rather silly, imo.

While headline CPI was 0% for the month to month, the CPI-W declined -0.1%. Both were largely a product of the decline in energy, specifically gasoline. Gasoline has already fallen on this date, by similar numbers as July. Which will be more than enough to offset the rise in groceries (more later on groceries). Gasoline should fall a bit further over the next week, but seems to be set to stabilize.

It might even offset any expected increases in "core" inflation. My August projection in the chart is for a range of -0.2% ~ +.01% month to month for CPI-W.  September CPI-W ranges from -0.3% ~ 0.0%. So while the chart plots the C.O.L.A. increase range as 8.6%~9.0%, the lower number is much more likely, imo.

So call me suspicious of "non-partisan" groups that have headlined the potential for 10%+ S.S.A. C.O.L.A. and their adoring "journalists" that published this information for seniors on Social Security to read. To get 10%+, you have to have at least one month above 10% and likely 2. We haven't had even one. 

It does make me wonder what the aim of those "reports" were? Further divisions? Which brings me to politics. One side of the aisle plays up the 0.0% change in M/M and the other side reminds us, it is still 8.5% Y/Y.

I may sound like the latter, given what I am about to say. But first, another chart (BLS sourced, except projections)...

When I earlier mentioned a near repeat of July's numbers for August, I was not kidding. Which brings me to food... something I rather enjoy. It also brings up the looming food insecurity and a phenomena called "hangry" . The latter of which is a smash-up of hungry and angry.

August's food at home will most likely be +14.3% Y/Y. How can I say this? This is the PPI (BLS) from July and while it was down -0.5%, that did not mean everything went down. NO! It did not!

Somehow I believe, some of this will get passed on. It is already an issue on the websites I frequent, just as gasoline prices were. Were, as in it has shifted to lower pump prices, but still unhappy, as it isn't what it was 1 year or 2 years ago. So remember the 2.0% finished consumer goods, one month jump of the PPI. It is coming to a home near you.

Food is becoming more and more the topic, with many expressing some form of hardship. What intrigues me, is they are still hanging on to their smart phones, internet connections, etc. 

However, there are people that either haven't had any of those items or have had to cut back. People do change their spending habits for one reason or another, but keeping food on the table is rather constant, imo. 

I am referring to the USA in this instance, as I cannot imagine the hardships being foisted on a large swath of the population in Europe. And as food is a global commodity... the rest of the world as well. Seriously, I cannot fathom what it is like in some areas of Africa where food scarcity is the issue.

Food scarcity... lack of basic nutritional food.

Food insecurity... inability to afford basic nutritional food.

We have enough angry people in the USA, without increasing food insecurity and making even more people angry or hangry. 

Which goes to show a tried and true historical method is once again being used. Our "elected leaders", "corporate masters", and their "media shills" must ensure we are blaming each other, rather than focusing on the real problem... which is "them".

I'm sure we will be informed how things are "looking up" or the "sky is falling". Most likely all spin, just like water circling the drain.  

Whew! I got that off my chest! Time for a nap?

Still Too Early to Project C.O.L.A Increases... But the Early Bird Gets the Worm. Yuck!

Yes, it is too early, but I cannot help myself. After perusing all the forecasts of inflation, here goes. Of course an explanation is needed as to the rules regarding determining C.O.L.A.

CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) is the gauge used, not the headline CPI, as in CPI-U (Consumer Price index for ALL Urban Consumers). The difference being the salaried and technical folks are in the latter. 

Typically the CPI-W has lagged behind the CPI-U, (hereafter referred to simply CPI). This can be seen in the CPI reading of 292.296 (May-2022), compared to 288.022 for the CPI-W. Both started their indexes at the same time... back in the early 80s.

However, after lagging all that time, the CPI-W is catching up with a vengeance. Why? I don't know, maybe something to do with Covid. (That's intended to be humorous).

Certainly, a lot of things can change between now and then. Even the forecasts are suggesting a peak to inflation in July and then subsiding. It is not unreasonable to view current projections and expect 8.8%~9.1% as the potential range for C.O.L.A. adjustment. Although things appear to be outpacing forecasts to the downside.

• June CPI-W is forecast as 9.3%~9.4%
• July CPI-W is forecast as 9.2%~9.4%
• August CPI-W is forecast as 8.7%~9.0%
• September CPI-W forecast as 8.3%~8.5%.

Whatever the increase might be, it would be important to put that into perspective. Theoretically, the increase which comes in January 2023, puts you back to the purchasing power you had in July, August, and September of 2021. Any lost purchasing power is gone... forever.

The 2nd part of the discussion starts with Medicare Premiums. They jumped a lot this past year, due to the dementia drug and there is a belief that somehow a big drop is forthcoming as the Center for Medicare & Medicaid Services has altered their stance on that drug. 

Fine, but the anticipated hike in 2022 was for a jump from $148.5 to $158, without the dementia drug. The dementia drug's actual cost same in about half of the anticipated, which brings it back to the $158~$160 range. What about the increases in Medicare costs, aside for the dementia drug?

I would not expect any great reductions in Medicare premiums for 2023, although it should not deduct from the C.O.L.A. increase... as it had in years past.

Now to the scams... my wife received a letter from a well known entity, decrying some legislation in Congress that was intended to undermine S.S. Contributions were desperately needed to help stop this legislation.

I checked and found the legislation was proposed back in early 2021 and has sat in committee since, and has apparently been forgotten by all... except the folks desperately looking for revenue sources.

Maybe I am becoming too cynical, but when someone asks for money to somehow benefit me... I immediately become suspicious of them. It has served me well.

Lipstick on a Pig!!

I recently read an article on a widely read news website that stated a 8.5%+ increase in Social Security was in the offing for 2023. It cited a certain "non-partisan" research firm. 

Whoa... "non-partisan" is quite a tube of lipstick. Overlooking the shady history of this organization, it was clearly a political hit piece, intended to plant an idea in the public's thought process in an election year. 

While it might be possible, there is nothing in the tea leaves to suggest such an increase. The current suggestions indicate a range of 5.9%~6.2%. No doubt the beneficiaries of this increase will harken back to the 8.5%+ number and claim they have been cheated by the politicians in power. 

For that 8.5%+ to continue until the July ~ September time frame, would require something above 0.7% monthly increases through September. Supply v Demand is already indicating a drop off in demand for Gasoline, although Crude supplies are short. Food demand will not drop off, with supplies tightening. Almost all other items are beginning to stabilize. 

Let's face it... such an inflation rate necessary to hit the 8.5%+ YOY increase for 3rd Qtr. would likely send us into some type of recession.

I, also, have been reading about how NATO is so much stronger now, with the Russian invasion of Ukraine. If anything, the weaknesses are more visible. If someone were to attack a NATO country, the NATO council would require “consensus” for official involvement. Not likely and would end up with something akin to a “coalition of the willing.”

Such an action would likely result in the halting of energy supplies to Europe, which would result in widespread economic consequences. THAT would be blamed on the good old USA… not Putin.

Of course, it would be a false premise, but the USA should be used to being blamed for everything wrong in the world. Of course, the USA has made more than a few mistakes, but not 100% of everything. But being the leader of anything comes with intense scrutiny and blame… every time something goes wrong. Which overshadows any accomplishments.

Which brings me to the subject of Germany, the leader of the EU. A seismic shift has taken place inside the country’s political objectives regarding Russia. Early on the dialogue was about his 180° turn and the self-reflection of previous policies.

Now it seems the criticism of Germany is causing the politicos to sound alarms about the “unfairness” of such criticisms. Some is deserved and some… maybe not. When times get tough, it is not uncommon to blame the leaders and Germany is a leader. It comes with the territory.

German policies have created the potential for a huge mess, but most of the EU followed along and reaped the benefits. Faced with adversity… a scapegoat is needed. But they shouldn’t worry too much, as eventually this will all be blamed on U.S. policies, whether due to inaction, over-reaction, meddling, etc. After all, most of the world blames the U.S. for Russia being forced to invade Ukraine.

Social Security is Being Robbed?

Courtesy of Freepik.com

Bear with me...

You go to the bank and open up an interest bearing checking account. You deposit $500 and throughout the following month, write checks for $1,250, while depositing another $1,500. At the end of the month, there is $750 in that account. The bank pays you interest on that amount. This repeats month after month.

I hope you are not one of those people that think the money you put in is just sitting there and collecting interest. It is NOT. The bank pays you interest to use your money to facilitate loans, etc. Things that would give the bank a means to make money and in return... pay interest. THAT bank account is what the bank will back, if you ever need to withdraw its entirety.

The Federal Government has something similar called Reserve Accounts. There are dozens of these reserve accounts and the OAS Trust Fund (what we commonly refer to as THE social security trust) as well as DI (the social security disability trust)... so on and so on. 

It is called a trust fund due to the Constitution. 

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Basically it says that taxing the general public for benefit of one group is not constitutional. Hence the bookkeeping around the whole matter. It was a workaround to avoid constitutional challenges of the act. And constitutional challenges in the 1930s was a fixture during FDR's early years... which led to an attempt to pack the court. 

I'm not real sure how or why many people think the trust fund has been robbed, etc. While there has been some changes over the years, the trust fund is set up exactly as it was in the beginning... 1935.

Hence the phrasing of the original act... 

An act to provide for the general welfare by establishing a system of Federal old-age benefits

Here is the original Social Security Act. The above is the preamble. Note the number of "titles" in the act (11). The trust fund we are familiar with and the program most people think of in terms of Social Security is but one title. That would be Title II. 

There is hereby created an account in the Treasury of the United States to be known as the Old-Age Reserve Account hereinafter in this title called the Account.

It details how it would be collected, spent, interest paid etc. The only change is how the accounting of the trust funds, relative to the overall budge. For awhile, it was treated separately, but currently is counted together, as far as national debt. Note: intragovernmental holdings would include all trust funds, which are many, and would include OAS, DI, and Medicare A.

Actually, the fractional reserve monetary system is the monetary system used by banks, the fed, etc. There is a school of thought that this should considered theft. However, can we really call something theft if we agree to collect interest and have the federal government guaranteeing our deposits?

It has been getting interest since day one. Without that interest, the trust fund (OAS) would be more in the order of $500B, rather than the current $2.8T. When you think about, if there were a balanced budget excluding Social Security (OAS) revenue, would there be a need to pay interest? The interest accrued is likely tied to the 10 Year Note, as it historically has nearly matched that rate.

Whether you think it has been robbed or not, that $2.8T is the current balance and as more people retire and draw from that trust and outstrips the revenue... that balance will fall, just like that interest bearing checking account. Added into the equation is interest paid is falling as interest rates have fallen.

Doing nothing guarantees the fund will finally hit zero in the 2030s. And just as you would with that interest bearing checking account you have at the bank... you will start delaying payments until the money is the bank, to back that payment. It will not go bankrupt, but simply be arrears in payments. Yes, people and companies can go or be forced into bankruptcy, which is the inability to pay creditors. We the People are both creditors and debtors in this instance. We gonna sue ourselves?

For Social Security (OAS), this would result that monthly check getting delayed by a couple of weeks each month, until the checks are behind about 3 months in the first year. That continues until the revenue returns to match the outgo. Then there is the matter of revenue being enough to catch up on all those delayed checks.

So when you hear someone throwing a hissy fit about proposals regarding saving Social Security (OAS) and then proclaim there is/would be nothing wrong if the government hadn't robbed it, they are to put it delicately... stupid.

The argument being put forth would be similar to someone screaming there is/was nothing wrong with their dwindling bank account if the bank hadn't robbed them. How else can that be anything but... stupid. The alternative would be to have the bank charge YOU a fee for holding that money in a vault OR you could stuff it under the mattress.

Saving Social Security and Changing C.O.L.A.

 

via GIPHY

I have been reading about attempts to save Social Security of which I partake. Does Social Security need saving?

The short answer is no, as social security will not come to an end in 2033/34. Think of the S.S. trust as a bank account. You put money into the bank and the bank uses it to make loans, which is how the bank can afford to pay interest into your account. That is the basic foundation of S.S. from the beginning in 1935.

The issue is... your expenses are now exceeding the amount you are putting into that bank account as well as the interest being paid to that account by the bank.

At some point in 2033/34, the amount being withdrawn cannot exceed the deposits, which results in something like 80% of withdrawals compared to previous.

The ideas being put forth, while ignoring the likelihood of congress doing anything...

A. Raise the eligibility ages. Considering the longevity of the average American is now older... probably an good idea, but not a complete resolution. 

B. Remove the cap on taxable earnings or raise it substantially. Probably the best solution across the board and can take various forms to alleviate the issue going forward. Whether deducting only from the worker and continuing cap on employers, etc.

C. Change the method for calculating increases. This runs into changing from current Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to either Consumer Price Index for All Urban Consumers (CPI-U, which is current headline used) or Chained Consumer Price Index for All Urban Consumers (C-CPI-U) or Research CPI Experimental for Americans age 62 years of age and older (R-CPI-E). 

As an elder, I can narrow down the choice fairly quickly, based on which would have benefited me. The current method of CPI-W had fairly consistently moved with CPI-U and outpaced C-CPI-U on a historical basis. It does strike me as odd that the current CPI-W year over year is outpacing those two by a large margin. 

Historically, the following is based on typical rank of inflation (from highest inflation to lowest, based on August BLS release)...

• R-CPI-E (100=1982; current 297.114 (217.8=2007, 36.42% increase since 2007)
• CPI-W (100=1982; current 268.387)(205.777=2007, 30.42% increase since 2007)
• CPI-U (100=1982; current 273.567 (210.236=2007, 30.12% increase since 2007)
• C-CPI-U (121.295=2007: current 153.715) (26.73% increase since 2007)

Based on data from August BLS release...

• CPI-W (5.8%)
• CPI-U (5.3%)
• C-CPI-U (5.1%)
• R-CPI-E (4.8%)

So obviously for the long haul, I would have preferred the R-CPI-E, based on the above, but... since December 2016 until July 2021, the changes have been this by rank... (did not update to August numbers.)

• CPI-W: 13.8%
• CPI-U: 13.1%
• R-CPI-E: 12.86%
• C-CPI-U: 11.68%

Clearly something has changed since 2016 and the near term data favors the CPI-W. 

Until something better comes along, the CPI-W remains the best option as the E in R-CPI-E stands for experimental. Not sure why so many on the left are pushing the R-CPI-E. I understand the right's fascination with C-CPI-U.

The answer to the Social Security dilemma is a combination of A and B. While it is a fun task for me to opinionize about the matter, it still falls to a future congress to actually do something.

Congress does not move on major projects unless pushed into a corner. My guess would be about 10 years from now... that corner will come into view. Truly, I do hope to be around to see that take place.