- A wonk’s modest proposal to “fix” Social Security
- What might the Bernanke Commission propose in 2017?
- The crash everyone anticipates… is the one that never materializes
- The giant sucking sound of liquidity draining from the junk bond market, continued
- Golf balls that violate the Vienna Convention… the abuse of the term “capitalism”… Texas secessionists in league with Putin!… and more!
They’re coming after Social Security spousal benefits. Count on it.
“Social Security spousal benefits have been part of the benefit structure since 1939, a time before Rosie the Riveter, the women’s movement and the decline in average wages which forced women into the workforce,” writes Jeffrey Miller, a retired econ professor at the University of Delaware.
“It is time to question the fairness and usefulness of the spousal benefit in the context of today’s realities,” Miller says in a MarketWatch column posted last Friday.
Today’s episode of The 5 is a follow-up from May 14. Then, we took note of an item in President Obama’s 2015 budget blueprint. It proposed to eliminate “file and suspend” — a method many couples use to maximize their Social Security benefits over time.
The proposal doesn’t have a prayer of passage in Congress this year or next.
But Professor Miller goes a step further. And he makes us wonder what’s in store once we get past the 2016 elections…
“Let’s eliminate the spousal benefit altogether,” proposes the professor, invoking a word that should always make you reach for your wallet defensively — fairness.
Miller cites the case of two hypothetical couples: Both earn $2,000 in Social Security benefits at full retirement age. But the wife in Couple No. 1 never worked, while both spouses in Couple No. 2 worked.
“If the husband in couple (1) claims retirement benefits at full retirement age ($2,000) and his wife claims spousal benefits (half his benefit, $1,000) when she reaches her full retirement age, the couple will receive $3,000,” Miller writes.
“If the husband and wife in couple (2) also wait until full retirement age to claim their benefits, they will receive a total of $4,000. While couple (2) will receive $1,000 more in benefits than couple (1), they will pay twice as much in Social Security taxes during their working lives. Thus, couple (2) pays twice as much in taxes and receives only 33% more in benefits.”
Our point today isn’t about whether Miller is right or wrong. It’s about this: The government reserves the authority to change the rules of the game at any time.
We learned this more than a generation ago from the Greenspan Commission. Before he embarked on his two-decade path of destruction running the Federal Reserve, Alan Greenspan chaired one of those proverbial bipartisan blue-ribbon panels. Its task — to shore up Social Security’s shaky finances.
President Reagan appointed the commission in 1981, a year after his election. The commission’s work resulted in the Social Security Reform Act of 1983. Its signal clause broke a promise dating back to the system’s creation in the 1930s — that Social Security benefits would not be subject to income tax. Today, up to 85% of Social Security benefits are taxable income.
But the reforms had only so much impact. As we’ve mentioned from time to time, Social Security’s own actuaries predict the program’s “trust fund” will be exhausted by 2033… and researchers at Harvard and Dartmouth anticipate the day of reckoning will arrive sooner, in 2029.
So it’s not hard to imagine the next president, whoever it is, appointing another bipartisan blue-ribbon panel to once again take up the task of revamping Social Security.
If the new president follows the Reagan timetable, the commission will be appointed in 2017 and its recommendations would end up as law by 2019. (Maybe Greenspan’s successor, Ben Bernanke, would be the chairman?)
As we noted last month, eliminating file and suspend won’t achieve much in the way of savings — $9.5 billion a year, or barely 1% of the $863 billion in benefits Social Security paid last year.
But eliminating spousal benefits? The aforementioned Professor Miller says now we’d be getting somewhere — although he doesn’t offer up hard numbers.
It’s this simple: The rules will change, sooner or later. And you need to do everything in your power to maximize your retirement income above and beyond Social Security.
That’s why we’re so keen on “piggybacking” Canada’s version of Social Security. The Canada Pension Plan runs a surplus. Its reserves have doubled in the last 10 years. And it’s run by professional investment managers.
You can collect as much as $4,700 a month in “benefits.” We know of a retired businessman from Illinois who collects as much as $2,230 a month. You don’t even have to wait to retire to start collecting. Discover how to take advantage by following this link.
The markets have begun a new week in “risk-on” mode. The major U.S. stock indexes are solidly in the green as we write, the S&P 500 at 2,125.
Bonds and gold are selling off. The yield on a 10-year Treasury note is back to 2.35%. Gold has lost its tenuous grip on $1,200, the bid at last check $1,184.
The elite media attribute the moves to continued progress resolving the Greece mess. For all we know, it might be true for once. Heh…
The one economic number of note is existing home sales — up 5.1% in May to their highest level since 2009.
The market never crashes when conventional wisdom is counting on an imminent crash.
So we’re reminded this morning by Greg Guenthner of our trading desk. “Most investors are terrified of a market crash right now. And you know what that means. You guessed it, stocks shot higher last week.”
It’s the Nasdaq and the small-cap Russell 2000 that have been most impressive, touching new highs last Thursday, and pushing even higher into record territory this morning…
“Picture-perfect breakouts,” says Greg of these charts. “Keep in mind the S&P 500 and the Dow Jones industrial average are both off their highs — even as the Nasdaq and Russell 2000 broke out into new territory. But the big boys are getting in gear. And they’re sticking out their tongues at all those scaredy-pants investors who think their run is over.
“Right now, everyone from pikers to pros is on the same page: Stocks should go down. And that’s produced the perfect environment for an unexpected rally.”
Meanwhile, more signs of stress are emerging in the bond market. Investors pulled $10.3 billion out of bond funds during the week ended last Wednesday, according to Bank of America Merrill Lynch. That’s the biggest outflow in two years.
Corporate bond funds made up $6.1 billion of that total… and within that category, $4 billion of withdrawals came from junk bond funds. That’s the biggest outflow since last December.
At the same time, liquidity is drying up further for investment pros seeking to short junk bonds betting they’ll go down.
We heard last week from hedge fund manager Erik Townsend, who told us he was short 12,000 shares of HYG, one of the big junk bond ETFs… until his broker closed out his position against his wishes.
“Now the problem has spread to JNK, the other big junk bond ETF,” he tells us by way of follow-up. “You can’t short either one of them on the Interactive Brokers platform, due to no shares available to borrow.
“Think about how this influences the process of price discovery. Normally, buying pressure and selling pressure balance out. There are so many natural sellers and so many natural buyers. The buyers push the price up, the sellers push it back down. The ‘market clearing’ price is then discovered by balancing the desires of buyers and sellers.
“But right now we have a situation where natural buyers are bidding the price up but short speculators cannot balance their exuberance because no shares are available to sell short. That means the price can go up much more easily than it normally could if the specs were allowed to take the short side of the trade.
“So the price can be expected to rise (yield decline) until shares are available or the specs find a way to express their view other than through ETF shares, say, by shorting the underlying bond issues directly. That could set the stage for a very abrupt reversal to the downside after a false rally.”
Consider yourself warned…
The golf story that has our attention this morning is not Jordan Spieth winning his second major tournament at age 21… but a neighborly dispute that’s become an international incident.
That’s a banner on the fence surrounding the residence of Switzerland’s ambassador to Venezuela — not far from the Caracas Country Club’s golf course.
It reminds all concerned that under international law, the residence is considered sovereign Swiss territory. “Launching balls into this residence,” it goes on to say, “is a danger to whoever is within Swiss territory and a violation of the Vienna Convention if a golf ball injures or kills anyone on Swiss soil.”
The ambassador, reached by Reuters, had no comment. The Venezuelan Federation of Golf, however, calls the banner a “strange overreaction.”
And if you’re wondering, yes, Venezuela is still an economic basket case. The official inflation rate is 64%. But the Troubled Currencies Project maintained by Johns Hopkins econ Professor Steve Hanke finds the real inflation rate as of two weeks ago was 492%.
“The LA Times is behind the curve on Texas secession,” writes a reader, circling back to a topic from last week… and we presume at least part of the following is tongue-in-cheek.
“The new gold depository is just one element in the process. The Lone Star Gold Bucks currency is designed and ready for printing; new international bank charters, numbered accounts and passports for AmeriKa’s beleaguered producers are waiting in the wings; and a deal with Putin to provide security with a nuclear flotilla based in Galveston is among already established plans. The only paranoia exists in D.C. with the Obamanistas, or future Warrenistas. Texas can certainly stand alone and prosper if need be.”
“It occurs to me that when Texas was a republic,” writes another, “it included land in what is now Wyoming, Colorado, Kansas, New Mexico and Oklahoma.
“Texas, I believe, had an independence clause in the agreement that it could withdraw from the union if it wished. I wonder if the other states would use that fact to say that as part of the former Texas Republic, they also had the right to succeed? This could be interesting.”
“You frequently (as do many conservatives ) refer to crony capitalism,” a reader chides.
[Frequently? And are you implying we’re conservatives?]
“There is nothing capitalistic around this kind of government behavior. Rather than besmirching the term ‘capitalism’ and creating confusion amongst those who need to be educated about real capitalism, why don’t change your reference of ‘crony capitalism’ to ‘crony theft’ or ‘crony theft by government’? It is much more descriptive of what is going on.”
The 5: Too late. “Capitalism” was corrupted long ago by the crony types. At most, you could accuse us of redundancy.
We stand with Sheldon Richman from The Future of Freedom Foundation — best give up “capitalism” altogether and go with “the free market.”
But we’ll still resort to “crony capitalism” now and then. It’s a hackneyed phrase, but no one is confused by what it means…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. We can anticipate another ruse from the Bernanke Commission — or whatever body the next president creates to “fix” Social Security.
That would be raising or even eliminating the cap on income that’s subject to the FICA tax — which this year is $118,500.
Time was that was a political nonstarter. It would mean giving up the pretense of Social Security as a social insurance program and acknowledging it’s a wealth-transfer program.
But in an age of hand-wringing over income inequality, maybe it’s no longer a bridge too far.
We urge you to move toward achieving a more secure retirement, by piggybacking on the Canada Pension Plan. You can start collecting “benefits” even while you’re still working — anywhere between $400-4,700 a month. Begin here.
