Social Security’s Drop-Dead Date

  • When will Social Security really be broke?
  • Canada’s (solvent) retirement plan gets a jolt
  • The Fed’s fruitless quest for a “wage-price spiral”
  • Will firearms message boards vanish come Monday?
  • An iffy IPO… reader detects The 5 is losing its mojo… Chris Mayer’s book and nothing but the book… and more!

Whew — Social Security has another year’s lease on life. Or so we’re told.
Over the last three months, we’ve mentioned periodically that Social Security’s own actuaries predict the program’s “trust fund” will be exhausted by 2033.
Last week, they issued a revised forecast. Now the trust fund won’t be exhausted until 2034. Whew!
“Except that is not what the report really says,” interjects our friend David Stockman.
Among many stations he’s held in life, Stockman’s still most famous as White House budget director during Ronald Reagan’s first term. The man can pick apart numbers with the best of ’em. And he’s dug deep into the report for the truth.
“On a cash basis,” he writes, “the OASDI (retirement and disability) funds spent $859 billion during 2014 but took in only $786 billion in taxes, thereby generating $73 billion in red ink. And by the trustees’ own reckoning, the OASDI funds will spew a cumulative cash deficit of $1.6 trillion during the 12 years covering 2015-2026.”
Because the “trust fund” is an accounting fiction, the only conceivable way to cover that $1.6 trillion is to run up the national debt.
But armed with their bag of accounting tricks, the Social Security actuaries figure we’re golden. “The whole rigmarole of trust fund accounting enables these phony assumptions to compound one another,” says David, “thereby obfuscating the fast-approaching bankruptcy of the system.”
After running all the numbers, he finds the 2034 target is bunk.
“The OASDI trust funds could be empty as soon as 2026,” Mr. Stockman concludes.
We’ll pause to emphasize that’s only 11 years from now.
The fallout — “a devastating 33% across-the-board cut in benefits to affluent duffers living on Florida golf courses and destitute widows alike.”
So what accounts for the eight-year difference from the “official” numbers?
“The untrustworthies who wrote the report assumed that nominal GDP would grow at a 5.1% annual rate for the next 12 years. Yet the actual growth rate has never come close to that during the entire 21st century to date. At best, these people are dreaming, but the truth is they are either lying or stupid.”
We’ll leave it to you to decide which…
Meanwhile, Canada’s already-thriving version of Social Security is about to get a new boost — we daresay at America’s expense.
“Last month,” says our income specialist Zach Scheidt, “a new billboard appeared in the heart of California’s Silicon Valley.


“The H-1B visa,” he explains, “is a special class of visa that allows U.S. companies to employ foreign workers with special technological skills. These workers are key drivers of the creativity and technology advances that Silicon Valley is known for.
“But alas, the U.S. government is mired in red tape when it comes to immigration. And that red tape is causing frustration for both technology startup companies and the workers who hope to be employed by these growing U.S. businesses.” So Canada is courting these skilled workers — touting, among other benefits, access to the Canada Pension Plan (CPP).
As Zach has reminded us for some time now, the CPP is professionally managed, runs a surplus and is growing its reserves.
And that growth is sure to accelerate with an influx of eager and skilled immigrants. “As new jobs are created in Canada,” Zach explains, “more cash will be paid into Canada’s Pension Plan. This cash will come from Canada’s equivalent of our Social Security tax here in the U.S.
“But instead of being used to invest in government IOUs or to pay benefits to retirees, these contributions to the CPP will be invested in the country’s free market program.”
Sounds like a winner. No wonder Zach is encouraging his readers to “piggyback” the Canada Pension Plan. This week, he updated his presentation that’s generated so much interest. In it, you’ll meet a woman from here in Maryland who used Zach’s piggyback strategy to collect $4,891 in extra income during 2014 — without once setting foot in Canada.

Click here to see exactly how someone like you is “piggybacking” Canada’s Social Security…

The major U.S. stock indexes have opened the day flat. The S&P 500 remains above 2,100 — at last check, 2,110. Treasury yields are falling, the 10-year back to 2.2% — as low as it’s been the last two months.
Gold slipped a bit overnight but recovered this morning to $1,094. Crude’s run toward $50 earlier this week has decidedly failed, and a barrel of West Texas Intermediate fetches $47.81 as we write.
The Street buzz this morning is all about an IPO filing yesterday by SoulCycle — described in the Financial Times as “a chain of indoor cycling studios that has amassed a cult following in New York and California.”
Says SoulCycle’s prospectus: “Set in a dark, candlelit room to high-energy music, our riders move in unison as a pack to the beat, and follow the cues and choreography of the instructor. The experience is tribal. It is primal. And it is fun.”
Heh — among the flurry of IPOs in recent years, this one should be interesting to watch. We’re not talking about a gaming app developer with little in the way of costs other than marketing. A fitness studio requires equipment… space to rent… personnel to lead the sessions.
Can the glow of celebrity customers like Tom Cruise and Lady Gaga bring enough traffic through the door to justify those costs? We shall see…

The big economic number of the morning is one that usually doesn’t get a lot of play.
Every quarter, the Bureau of Labor Statistics issues its employment cost index. It’s a broad measure of, well, the cost of employing someone — both pay and benefits.
“In a shocking result,” says a summary from Econoday, “the employment cost index rose only 0.2% in the second quarter, which is far below expectations and the lowest result in the 33-year history of the report.”
Oopsie, the “expert consensus” was looking for an increase of 0.6%. The year-over-year increase is only 2% — not a record low, but close to it.
The number is important right now because the Federal Reserve is desperate to see signs of inflation (as the Fed defines it). The more signs of brewing inflation, the easier it is for the Fed to justify finally raising the fed funds rate from the near-zero level where it’s sat since the Panic of 2008.
Conventional wisdom has it that inflation can’t really take off until pay increases can complement price increases, generating a “wage-price spiral.” Thus this morning’s number is another nail in the coffin of the notion the Fed will raise the fed funds rate in September.
But if you follow Jim Rickards here in The 5, you knew that already…
Imagine the feds finding a way to trash the First and Second Amendments in one fell swoop.
For the last two months, the National Rifle Association has sounded the alarm: “Your action is urgently needed to ensure that online blogs, videos and Web forums devoted to the technical aspects of firearms and ammunition do not become subject to prior review by State Department bureaucrats before they can be published.”
The U.S. State Department is indeed in the process of revamping its International Traffic in Arms Regulations (ITAR). The old regulations claim authority over “technical data” published in the “public domain.” The new regulations redefine those terms in a way the NRA finds tantamount to a “gag order” on nearly anything firearms-related posted online.
The proposal was published in the Federal Register on June 3, opening a public-comment period. That period expires Aug. 3 — this coming Monday.
We hasten to note that not everyone in the gun-rights community is freaked out: “The ITAR regulations, while perhaps drawn up in a clumsy and overly broad fashion, seem clearly designed to keep a lid on sensitive technical data for advanced defense equipment,” writes Jazz Shaw at the reliably conservative Hot Air site.
“Let’s face it… you’re not supposed to be publishing instructions on how to build a nuclear bomb on your blog, and the same goes for advanced fighter jets, smart bombs and a host of other emerging technologies which we would like to keep from the hands of our enemies for as long as possible.”
Here at The 5 we won’t draw any conclusions. No doubt the NRA knows a good fundraising opportunity when it sees one.
Still, we confess to a certain amount of self-interest here. See, only this week, our Laissez Faire unit began publicizing how you can get firearms, ammunition and all manner of emergency and survival gear for pennies on the dollar — and, in many cases, free.
If the regulations were to take effect on Monday, we’d have to take this information offline instantly. You’d do well to check it out right now, while we’re sure you still can.
“With all due respect,” a reader writes, “I regret to tell you the quality of The 5 has deteriorated so much that pretty soon it will descend to the level of [a competitor].
“It’s nothing but excruciating sales and re-re-re-reproduction of your different letters. Your topics are boring, cheap and unworthy of reading.
“Moreover, we pay a lot of money for your different publications and then you publish them free for others. For instance, The Big Drop is collection of Jim’s articles in Strategic Intelligence that we paid for. Do you think that’s fair?
“And please stop publishing stupid letters of your readers about their car or tax situations.”
The 5: With all due respect, have we changed… or have you?
We’re doing the same thing we’ve been doing for — well, your editor has been on the beat for five years now, first in collaboration with our fearless leader Addison Wiggin and solo much of the time since 2012.
As we said a few days ago, The 5 has always been your window into the ideas our editors are working on — above and beyond the ones you see in the paid publications to which you subscribe. We aim to furnish you with worthy insights even if you resist clicking to a promotional link.
Some days, we’ll drop the promotional themes altogether in favor of a topic that’s interesting and/or urgent — to wit, our extended discussion about health care only two days ago. We did that even though there’s no shortage of compelling promotional themes right now — including some that are time-sensitive.
As for The Big Drop — yes, that is largely a collection of previously published material. We thought it would be an ideal way to bring new readers up to speed on the ideas Jim Rickards has been writing about since we launched Strategic Intelligence last October.
The reader comments? You’re not interested in what your fellow subscribers — kindred spirits, really — are experiencing?
That would be a world in which no one could react to feral hogs — which would be a mighty dull world, indeed.
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “In yesterday’s 5,” a reader queries, “you promoted the 100-Baggers book by saying, ‘Heck, we’ll send you the book FREE as long as you can spot us the shipping and handling.’
“But when I tried to ‘spot you’ the shipping and handling, I was confronted with a required subscription for $49 per year (and automatically renewable, ugh!). Is this an intentional ‘bait and switch’ or a simple mistake?”
It was, indeed, a simple mistake. A no-strings-attached offer for the book — packed with Chris Mayer’s insights into stocks that turn $10,000 into $1 million — can be found at this link. Enter the password “100x” for access.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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