The Market Ticker
Commentary on The Capital Markets- Category [Federal Government]

Oh gee, who was talking about this a couple of years ago -- and how the basic arithmetic of laddered bond portfolios made the destruction of pension and other obligations of similar types inevitable unless QE was halted?


Boeing Co., for example, funneled $800 million into its pension plans last year to help close a roughly $10.5 billion gap between its defined-benefit pension obligations and the value of its assets. The pension deficit still increased to $17.3 billion, as interest rates fell.

Many corporations have been hoping that rising rates would help close that gap, but J.P. Morgan’s bankers’ analysis shows rate hikes on their own won’t be able to do it all.

The bankers estimated that long-term rates would need to rise 3 percentage points to close the gap for a corporate plan that was 80% funded with average liabilities going out 12 years.

Many pensions are not 80% funded.  Even worse the same arithmetic applies to Medicare and Social Security!

The Fed is trapped; it allowed itself to become trapped by being the handmaiden to the Federal Government and Congress, enabling deficit spending over the last eight or so years and by doing so, with the government running trillion dollar deficits (yes, even last year; look at the debt!) on a continual basis The Fed has backed itself into a corner from which there is no good escape.

There is no decent (say much less good) answer to this problem: Money borrowed and spent is gone and yet rising rates force rollovers on increasingly-uneconomic terms!

Worse, as rates rise credit-worthiness goes in the trash as the percentage of budgets that must be put toward interest goes up as well, and this means that further rollovers occur at ever-higher rates!  Unless you run an actual, not "primary", surplus and start paying down the debt this inevitably produces a spiral where the pension funds "look better" but the debtors (that would be the US Government, along with state governments and companies that borrowed to buy back stock and pay dividends) get caught in a death spiral of their own design.

Put simply: Here it comes!

PS: To Cathy McMorris-Rodgers, John Boehner, Paul Ryan and the rest of you who I all warned back in 2011 about this very set of facts: May you be in office when the just desserts are served for your jackassery and outrageous acts.

View this entry with comments (registration required to post)

2015-06-11 05:30 by Karl Denninger
in Federal Government , 126 references


In all, Social Security overpaid beneficiaries by nearly $17 billion, according to a 10-year study by the agency's inspector general.

Many payments went to people who earned too much money to qualify for benefits, or to those no longer disabled. Payments also went to people who had died or were in prison.

Social Security was able to recoup about $8.1 billion, but it often took years to get the money back, the study said.

Let me stipulate -- every dollar "overpaid" was in fact stolen and that roughly half of it was recovered eventually doesn't change any of that.

But let me put a bit of perspective on this, from the September 2014 Monthly Treasury Statement.

Last year $144.6 billion was spent on benefit payments and administrative expenses.  This study shows that $17 billion over 10 years, or about $1.7 billion per year.

That's 1.17% of the total that was overpaid and half of it was eventually recovered.

Even if you were to put a stop to every dime of this documented abuse it would make zero difference in real terms to the program's funds, which will run dry next year.  The problem is the expansion of "eligible" circumstances and conditions under which you can collect Social Security Disability, including but not limited to self-inflicted harm (e.g. extreme abuse of alcohol or drugs that destroys one's health and/or ability to hold down a job) along with claims of various "injuries" or "disabilities" that are in fact false -- but never investigated or discovered.

The explosion of people on SSDI since 2008 (in FY2007 this program expended $99.9 billion; that is an expansion of cost by 45% since 2007!)  simply cannot be explained away by the premise that suddenly a huge number of people -- an approximate 50% increase -- "became" disabled as the economy tanked.  These people were clearly able to work up until they lost their jobs and then suddenly "discovered" one or more "disabilities" that allowed them to never have to seek or find work again, living on the dole instead as SSDI never runs out unlike unemployment and other forms of temporary assistance.

To Fox and others parroting this meme: Quit misdirecting what should be outrage expressed with pitchforks and torches.

View this entry with comments (registration required to post)

Main Navigation
MUST-READ Selection:
If You're Older Than 40 And Reading This...

Full-Text Search & Archives
Archive Access
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.


The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.