Social Security COLA for 2019 Is 2.8 Percent, or $40 a Month

Starting in January, the 62 million Americans receiving Social Security will get a cost of living adjustment (COLA) in their benefit checks of about $40 a month. For three out of five of them, their check represents about half of their total monthly income.

For those waiting to cash in, more than half don’t have enough saved elsewhere to support a “decent” retirement, according to the Center for Retirement Research. More than 90 percent don’t have a pension plan at work and half of those who do, don’t participate. Translation: By the time they start receiving Social Security, four out of 10 will be living at or near the poverty level.

In other words, of the three legs of their retirement stool, two legs are missing and the third is getting weaker.

Trustees of Social Security just announced the dreaded “inflection point,” where they are starting to have to dip into the trust funds’ reserves to pay out the benefits. That’s due to a number of factors: More workers leaving and fewer new workers entering, improvements in longevity of those retiring, low interest rates, “kicking the can” by Congress, and the increasing dependency of citizens to rely on the government for their retirement.

In plain mathematical terms, payroll taxes now cover only 87.5 percent of the payments being made to beneficiaries.

The “worker-to-beneficiary” ratio, originally more than 40-to-one when the program was instituted under the Roosevelt administration, is now less than three to one and dropping. In the next 10 years, it’s estimated to be closer to two to one. As in any Ponzi scheme, its success depends upon the entry of new participants to keep it going. Most Ponzi schemes fail when the participants figure out the scam. Social Security however, is not voluntary but is a government-mandated program that uses the threat of force to keep the flow of new workers coming in. But even that hasn’t been able to overcome demographics — the fact that baby boomers are now retiring, and people are living longer.

Since the program was never actuarially sound, it was just a matter of time before reality caught up with it. As Warren Buffet likes to say, “it’s only when the tide goes out that you discover who’s been swimming naked.” For Social Security, the tide, thanks to that “inflection point,” is going out, and about to leave the millions of Americans who are dependent upon it “naked.”

How bad could it get? Benefits are likely, under current conditions, to be cut by 20 percent in less than 15 years. But those conditions could change rapidly. Polls taken of millennials show that more than half of them don’t expect to get anything out of Social Security by the time they get there, thus greatly diminishing their political support for it. Others nearing retirement age are taking benefits at age 62 rather than waiting for full benefits at age 67 for fear that by waiting they will get less, not more.

The scheme at present has three sources of income, not just payroll taxes. While payroll taxes make up most of the revenue coming into the program, there’s also interest earned on the government bonds issued in place of the funds that were spent to support the government. Once those bonds have been redeemed (out of the general treasury using taxpayers’ income taxes), interest payments on those bonds into the scheme’s trust accounts will cease.

The third source is income taxes levied on the benefits received by the program’s beneficiaries. Last year, those income taxes on Social Security benefits amounted to almost $40 billion.

For those keeping count, the average Social Security recipient gets to pay three times for his benefits: first, through his payroll taxes; second, through his income taxes being used to redeem the special bonds residing in the Social Security trust accounts; and third, through income taxes levied on his benefits.

Can Social Security be “fixed?” The answer is no, because it was never actuarially sound in the first place. In the short run, there are “fixes” to keep the scheme from failing, such as extending the retirement age and reducing the COLA calculation. Since nearly every worker now is forced to participate, there are no new sources of workers to be brought into it. But those participating may enjoy the privilege of paying more in taxes. There’s the rub: In the new Congress, Republicans favor extending the retirement age and reducing the COLA, while the Democrats want the rich participants to pay more. In the new Congress, nothing is likely to happen, thanks to “gridlock” guaranteed by the midterm election results.

And so Social Security will continue its decline. Eventually those “reserves” will be liquidated (around 2033 or earlier) and benefits paid out will be limited to payroll taxes coming in. The trustees estimate that those depending upon Social Security, wholly or in part, will suffer at least a 20-percent haircut.

Of course, this wasn’t supposed to happen, according to the narrative that has surrounded the fraud since its beginning. Robert Ball, a past commissioner of Social Security, didn’t call it a Ponzi scheme but instead said it was “social insurance” designed to help people when earnings stop because one is too old to work or too disabled to work, or because the wage earner in the family dies, or because there is no job to be had, or when there are extraordinary expenses connected, say, with illness.

Generations of participants have believed Ball to the point where Social Security is the only leg of their three-legged stool still standing. When that leg gets shorter by 20 percent, many will finally conclude that it was a Ponzi scheme after all, and not to be relied upon in their old age. By that time, of course, it will be too late.

Stockton, California, to Begin “Basic Income” Welfare Program in 2019

Beginning in 2019, 100 residents of Stockton, California, will be receiving a “basic income” from the city government. This “pilot program” is the first of its kind in the United States and is akin to similar “universal basic income” programs currently and previously carried out around the world.

Here’s a summary of the Stockton situation as described by CBS13 TV in Sacramento. I’ve chosen to quote the details of the plan from local media because I want readers to appreciate that this is neither satire nor some attempt to exaggerate the facts to serve an editorial end:

A team of independent researchers will pick 100 people to receive the money. The purpose is to study how an extra $500 a month impacts people’s health and stress level. Researchers are also looking to see if people feel financially secure.

“Around this country, especially in communities like Stockton, people are working incredibly hard and falling further and further behind. We have people in our community that work two or three jobs, we have people that are working and still can’t pay rent,” said Mayor Michael Tubbs.

The researchers will also have a comparison group as part of the program. It consists of 200 additional people who will get a $20 gift card for filling out surveys and provide feedback.

“People who are working incredibly hard are smart and they don’t have money [not] because they are not good with money, they don’t have money because jobs aren’t paying enough for folks to live and survive. We believe something as small as $500 a month can make a world of difference,” he said.

There is so much wrong with this plan politically (assuming that the concepts of “consent of the governed” and “republican government” are still believed in California), but respectable economists have pointed out several pecuniary problems, as well.

In an article from 2016 assessing the “lunacy” of the “universal basic income” (UBI) proposal, Nick Giambruno laments, “It’s just a matter of time before the idea gains traction in the U.S.”

Welcome to the future, Nick!

Giambruno lists a few European efforts to institute a UBI:

Finland wants to pay its citizens around $1,000 a month.

The Netherlands and the U.K. have also proposed dishing out free money.

In Switzerland, there’s a proposal to hand out around $2,800 a month to everyone. This one is surprisng since the Swiss are generally sensible about money.

Needless to say, the Swiss overwhelmingly voted their UBI proposal down in a referendum. But Finland was on the cutting edge of the forced charity (yes, I know, a logical impossibility) when in 2017 it initiated its version of the UBI. The government of Finland doled out €560 (about $637) a month to 2,000 jobless citizens chosen randomly. The recipients were subjected to no minimum requirements to qualify for the “free” money.

Mind you, the average income tax rate in Finland is north of 51 percent. In other words, the “free” money is being taken from those who worked for it and given to those who did nothing other than have a pulse. Where I come from, that’s called theft.

The Stockton, California, program is described a bit differently. City leaders there claim that this money will be used to help the working poor. Here’s the hard-luck tale of the hard-working, but never-getting-ahead dad, as told by CBS13:

Stockton dad Jose Miranda works hard to save his money, but setting aside a small portion of his paycheck every other week can be a challenge. He says his expenses just keep piling up.

“Kids you know, my kids. I spend money on my kids the most, I think. And rent, in particular. Food and phone,” said Miranda.

Miranda lives in a neighborhood where the median income is at or below 46 thousand dollars.

It’s one of the areas the Stockton Economic Empowerment Demonstration program (SEED) is sending letters to people who may be eligible to get $500 a month with no strings attached.

“I think for the people that really need it, it will be good for them, like a lot of people say groceries, rent, car payment, even if you want to help a family member, anything extra is good to get,” Miranda said.

Trump, Paul Critical of Federal Reserve for Different Reasons

President Donald Trump’s early Monday morning tweet continued his criticism of the Federal Reserve, arguing that the central bank’s interest-rate increases threaten the U.S. economy. “It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!”

Trump has been a persistent critic of the Federal Reserve, and it is certainly a fact that its policies can have a huge impact on the U.S. economy. But whereas Trump, like most presidents, is critical of the Fed because it is raising interest rates — thus slowing down the economy — former Texas Congressman Ron Paul has a different take.

Paul served several terms as a Republican in a Houston, Texas-area congressional district, but also ran for president on the Libertarian Party ticket in 1988, as well as making a bid for the Republican nomination in 2008 and 2012. Now retired from public office, Paul continues to speak out on economic issues, as he did late last week on CNBC’s Futures Now program.

Paul warns that the recent corrections in the stock market may be pointing toward a much more serious market collapse — one that may come sooner rather than later. “Once this volatility shows that we’re not going to resume the bull market, then people are going to rush for the exits. It could be worse than 1929,” he predicted.

The infamous stock market crash of October 1929 marked the onset of the Great Depression, with stocks falling off nearly 90 percent. While investment advisors tell their clients that the stock market “always comes back,” the brutal truth is that it took several years for the markets to reach pre-crash 1929 levels.

Paul has always avoided personal attacks on other political figures, concentrating instead on policies. He differs sharply with Trump on tariffs, and cautioned that the ongoing trade conflict between the United States and China is a risk factor that might touch off a stock market plunge. “I’m not optimistic that all of the sudden, you’re going to eliminate the tariff problem. I think that’s here to stay. Tariffs are taxes.”

But the biggest problem is the “quantitative easing” policy the Federal Reserve adopted in the aftermath of the 2008 financial meltdown, which Paul contends created the “biggest bubble in the history of mankind. It’s also important to understand the original cause of the problem, and that is the Federal Reserve running up the debt and letting politicians spend money.” The Federal Reserve pumped about $4.5 trillion into the economy after the 2008 financial crisis.

While a guest during the summer on CNBC’s Futures Now program, Paul said, “I see trouble ahead, and it originates with too much debt, too much spending. The Congress spending and the Federal Reserve manipulation of monetary policy and interest rates — debt is too big, the current account is in bad shape, foreign debt is bad and it’s not going to change.”

Paul did not leave Trump out of his criticisms. “We have a president who likes to spend. He is not concerned about the deficit.”

Paul is not optimistic that Congress, the president, and the Fed will heed his warnings. “The government will keep spending, and the Fed will keep inflating, and that distorts things,” Paul explained during his July appearance on Futures Now. “When you get into a situation like this, the debt has to be eliminated. You have to liquidate the debt and the malinvestment.”

What Paul is saying is that inflation — the increase in the money supply through Federal Reserve “easy money” policies — sends out false signals to investors, thinking there is more demand than actually exists. Investments are made that will ultimately fail, dragging down the rest of the economy. In the 1920s, the money supply increased a staggering 62 percent. While there was much legitimate economic growth in the decade, the inflationary policy of the Federal Reserve led to much malinvestment, including in the stock market.

Many mistakenly believe that because there was very little increase in the price level during the 1920s, that there was little inflation. But what should have actually happened in the period of increased production was a time of falling prices. But because of the prevailing opinion that high prices and high wages equal prosperity, however, the Federal Reserve was applauded as it kept lowering interest rates to keep prices from falling. Thus, the great boom of the 1920s ended in the great bust of 1929. A better policy would be to allow the free market — rather than a monopoly central bank such as the Federal Reserve — set interest rates, thus preventing the extreme boom and bust cycles we have seen over the course of American history.

But Paul argued last week that any similar economic reversal now does not have to lead to a repetition of the Great Depression. “If you allow the liquidation, it doesn’t last long,” Paul said.

The policies of first the Herbert Hoover administration, followed by similar policies of the Franklin Roosevelt administration, turned the 1929 collapse into the longest-running economic depression in U.S. history. But as Paul said, history also indicates it did not have to be. Less than a decade earlier, confronted with a depression almost as severe as the one in 1929, President Warren Harding chose to basically do nothing and not turn to government intervention. Instead, Harding allowed the liquidation of bad investments, as Paul argues for. As a result, the depression was so short that some have called it “the forgotten depression.”

But we should remember it, so we will not have a repeat of the Great Depression. Hopefully, President Trump will heed the wise advice of Ron Paul. The best long-term solution is to abolish the Fed, and let the free market set interest rates.