Exposing the Beast
The Truth about Social Security
Chapter 11
The President of the
United States
delivered his State of the Union address and high on his agenda for this year
are his plans for Social Security. 
Is
our “Christian” President really being honest with us or is there another
agenda? Or is this just one more grab for the money from those who can least
afford it – our elderly? Is it an attempt to fleece Americans of their
savings by pouring more and more money into the stock markets in order to
increase the wealth of the already fabulously wealthy elites, increasing the
bonuses of the already handsomely reward executives without having to work for
it? Is there something more sinister going on when a government lies to and
cheats its people?
Is There a Crisis?
We need to ask some questions. Is there a crisis? What caused it? Does this solution make sense? If we want to know what will happen to Social Security, we need to see what has happened to pension plans and other private retirement schemes such as the 401k and equity funds that manage investments for the little people.
Social Security began modestly as a pay as you go system. In 1970, the maximum tax was only $327. Demographers realized that as the population aged, there would be fewer workers to a growing body of retirees. In 1983, they began to take out about 50 percent more than they needed so that they could invest it in the future. By 2004, it had grown to $5,450, an amount matched by the employer. A couple earning $87,000 pays out $10,788 in social security so the total amount going into the system is over $21,000 for a couple. The flat 6.2 percent tax employees pay on their first $90K of income imposes an effective tax rate four times larger for middle-income workers than the top 1 percent.
So
is the Social Security System broken as the President claims? It probably is,
but the question is why? You won’t hear him talk about that tonight. In the
past 20 years, the government has collected $1.7 trillion in excess of what
was paid out. Let’s talk about future value. A thousand dollars invested
today at 5% grows to over $4,30 in 30 years. Let’s say the $1.7 trillion had
been invested and tripled to $5.1 trillion and they were getting 5% return
that would leave $255 billion to pay out. That is the way the system should
have worked. But they spent it. All administrations, Democrat and
Republican, vowed to block the funds and not spend them. But they couldn’t
resist. Not only did they spend it, but they take it out of our pockets every
year in new taxes. Of course it is in trouble!
Not to worry you, but the $1.7 trillion is just the tip of the iceberg, because the total “unfunded liabilities” of the government is estimated at $53 trillion, five times our GDP! That is our future – higher inflation, higher prices for commodities, higher interest rates, higher unemployment, more bankruptcies, lower real wages and lower asset values (homes, etc.) So is there a crisis? There sure is but it isn’t Social Security. It is government mismanagement, and I might add, purposeful mismanagement. We already covered in previous articles how the tax policy of the government over the years favors the rich.
Will the President’s Proposal Work?
The idea of the reform is to let people handle their own investments which sounds like a good idea. Talking Points raises the following questions:
“First, what happens if you lose money? Are you just left out in the cold? Second, how will we pay the staggering $2 trillion transition costs? And third, what benefit cuts do they have in store? Who will be the winners under this privatization scheme? Who will run it?”
The Bush administration's crisis mentality leads to critical mistakes. This Administration has a dangerous habit of overstating crises and understating the cost of radical steps. The "Chicken Little" mentality brought us an ill-conceived war in Iraq, designed to control WMD we never found, launched with no exit strategy and with inadequate troops and equipment. This is the team that expected our troops would be greeted by jubilant crowds, rather than armed insurgents. Let's make sure we think this one through. This time, when they launch their reckless plan and declare "mission accomplished," they could leave American retirees holding the bag.
In order to see what the future may be for Social Security, let’s see what happened in the private sector of pension funds and retirement accounts. A few years ago, large corporations were only allowed to place them in secure long term instruments such as bonds that were safer from the vagaries of the stock market. Then the law changed, allowing them to invest in equity (stock) markets. They were making double digit in high tech sectors. Plus, their own companies could sure use the cash.
What Happens When these Funds Go into Stocks?
When people can direct their company retirement into to private pension plans and retirement funds, there is a regular huge cash infusion in the stock market every month. What happens if Social Security is reformed? Even more cash will pour into the markets, making the rich much richer.
As a result hundreds of corporations such as General Motors and Enron took the money out of safe investments and put it into the company stock – a great cash infusion for the company, but not good for the worker if something were to happen. This is exactly what happened to the “unfunded pension liability” and the concern grows as the numbers get bigger and bigger. Fewer companies offer pensions to workers and it is questionable if those that do will have the money when it is needed. General Motors is just one example of a company with a $13 billion pension debt. Pension funds were raided, taken out of secure investments and put into stock. When the stock fell… well, just look at what is happening to the airline industry. If a huge company bankrupts, so does the hope of a pension.
Once
individuals were allowed to put their individual retirement in 401k’s tied to
the stock market, money flowed in every pay day. This led to the bursting of
the stock bubble where $3 trillion of citizen money was lost. It doesn’t
matter that the Dow has rallied. That is new money. Someone’s retirement
money is lost and lost for good. Arthur Anderson, Global Crossing and Enron
are gone and so is the money. So are the retirements of little people.
Already private retirement funds are keeping stock valuations at “bubble
ratios” of 40 to 1. These ratios would be even greater if executive stock
options and unfunded pension liability were counted in the company balance
sheets. If wager earners are allowed to invest privately in the “equities”
such as the stock market, it would be extremely risky going up against the
pros. That is why it was not allowed until recently, but the greed of the
Wall Street elites is insatiable! Their need for more money knows no bounds.
So what happened to the mutual funds and other equity funds in the last
quarter of 2004? Ninety nine percent lost money, an average of 14 percent!
Partial privatization of Social Security sounds like a good idea on the surface but there are a number of factors to consider. Will that really solve the problem? Will the markets go up or down?
· Record Federal Deficits and record balance of payment deficits (current account) of over a trillion dollars a year will result in a bust eventually.
· Record low interest rates and record credit card and mortgage debt followed by “bubble” housing prices will bring down the financial and housing markets.
· Lower profits, a decrease in manufacturing, lower rates of consumer spending will lead to lower company valuations (a stock market crash)
· The Dow doesn’t always go up (because failed companies are continually dropped and new ones come in) and money lost is often lost for good.
· Inflation continues to whittle away at the value of any income, investment or retirement fund.
The government is correct in saying that Social Security retirement will not be adequate for little people depending upon it, but not for the reasons they give, but because of their overall abominable mismanagement of the government and economy.
Now let’s look at the
Stock Market for a bit? That is not the place for the average person.
Brokers are there to sell stocks, not to give you 
good
advice. The professionals will clean the clock of anyone who thinks they can
beat them. Remember, it is a zero sum game – someone always wins and someone
always loses. It is mob mentality. About the time the “lumpen investor”
jumps on the bandwagon, the stock is peaking and it is down hill from there.
The stocks are overvalued. Google has a few thousand employees, a great
search engine but it doesn’t make a thing – and yet it is valued as much as
General Motors and the stock is set to hit $235 a share leaving a P/E (price
earnings ratio) of a few hundred to one. It doesn’t have factories around the
world, or millions of employees such as Walmart. What makes Google so
valuable? Nothing other than hype. The earnings aren’t there. The stock
prices are again at “bubble” heights – 30:1 P/E ratio and even higher if stock
options, bonuses and pension liability is factored in. Good luck making money
in the market.
The Biggest Threat of All
In 1940, the government urged us all to ‘buy war bonds.’ One Series E bond cost $18.75 cents. At the same time, a pair of Buster Brown shoes cost about $3.00 so the bond cost as much as six pairs of shoes. Ten years later, the same shoes cost about $25 or the value of the bond (one pair of shoes). You buy six pair and get back one! What a deal! That is what inflation, the greatest hidden tax of all does for us.
The government tells us that we have been having the lowest inflation – in the range of 2-3 percent the past four years or so. All I know is that, in that period of time, the house I am living in has tripled in price (and it certainly isn’t in better condition) and just about everything else I can think of such as gasoline, food, etc. has at least doubled! The average Social Security recipient receives $960 a month. Social Security increases have been indexed to the same dishonest and understated inflation figures.
The Daily Reckoning (1/31/05) reports
“The Wall Street Journal calls the President,
“"President Bush 
deserves
very high marks on economic policy in his first term." Compared to what? He
borrowed more money than any other President, both nominally and
percentage-wise. He is presiding over the largest budget deficits in history.
We have the largest trade deficits in history. Foreigners own about a third of
all our marketable debt and assets. He got us into an expensive, deadly
quagmire of a war. He pressed for the most expensive and hugely grandiose
expansion of Medicare in history.
Last year, the dollar fell. This was supposed to lighten the load. Americans were supposed to buy less from overseas (because it had become more expensive) and U.S. firms were supposed to sell more to overseas consumers (because they were more competitive.) Instead, the gap between what Americans imported and what they exported grew larger!
Nominal wages rose 2.5% last year, begins the report. But inflation rose 3.3%, resulting in a loss of purchasing power of 0.8%. At the low-end of the income scale, however, the damage was more severe. People earning less than $21,000 saw paychecks down by 1.7% - not to mention inflation. How is this poor fellow going to pay back his loans?”
Peter Schiff of Euro Pacific Capital said,
"The longer rates stay too low," he says "the worse inflation gets, and the higher future interest rates will have to climb to contain it. Also, the longer the Fed keeps rates artificially low, the more floating-rate debt Americans will accumulate, and the greater the ultimate economic burden will be in servicing that debt. If the Fed's measured approach is intended to spare the economy from dealing with the full impact of this burden today, it succeeds only at the expenses of imposing a far greater burden tomorrow."
Money
inflation leads to price inflation. Price inflation is historically bad news
for anybody experiencing it.! And we are monstrously deficit-spending at the
end of a long, long boom where there is no pent-up demand! The Federal
Reserve continues to print dollars and spread them throughout the whole
earth. As the Richard Daughty said in yesterday’s Daily Reckoning,
“The damned Fed has watched as all that money that they created, ton upon ton of it, year after year, went into raw, grubby consumption financed by going into unbelievable debt, and buying overpriced government debt, and buying overpriced stocks, and overpriced bonds, and overpriced houses, and overpriced anything you can name.”
It doesn’t matter how much they tax for Social Security or how much the privatize, the problem is government and the economy are out of control.
The government, the President and the elites know this but they won’t admit it (for obvious reasons). Apparently, they don’t really care either because they keep establishing policies that impoverish the average American.
The
Federal Reserve will be the subject of a future article. It is neither
“Federal” nor does it have “Reserves”. The Fed, along with the various
administrations, over the past 90 years has been primarily responsible for
this mess, and even more so in recent years. The U.S. Fed has not merely
brought about an explosion in the number of dollars around the world; it has
also lit the fuse of other currencies all over the world. The
United States sells dollar debt. Foreign
central banks buy it by issuing currency of their own. The result? A world
flooded not only with dollars, but also with yen, kroner, euros, and pounds.
The broad money supply in Australia is rising at a 9.7% annual rate. In
Britain, the pounds pile up at a 9.3% rate. Canada multiplies its loonies at
9.1% per year. The Danes are expanding their money supply at a breathtaking
10.7%. Euros are increasing 6% annually. And the dollar - the U.S. broad money
supply is only increasing at a fairly modest rate of 4.8%, a rate that is
still far above the increase in GDP.
This expansion in money supply leads to inflation. If there are more dollars in circulation, each dollar is worth less. If prices rise and wages are stagnant as we discussed in previous articles, the result is you get poorer every year. And that is happening although it is masked by the illusion of wealth that comes from working longer and harder, rising home prices, etc.
The New York Times reports that “the fall of the dollar is not a surprise. It is the logical outgrowth of an unbalanced world economy, and America's gaping current account deficit - the difference between foreign trade and investment in the United States and American trade and investment abroad - is just the most visible manifestation of these imbalances. The deficit ran at a record annual rate of $665 billion, or 5.7 percent of gross domestic product, in the second quarter of 2004.” It was assumed that the falling dollar would help the balance of trade deficit but that hasn’t happened. It just keeps going up.
Analysis
We, as Christians,
realize that there is nothing new in what I just said. Of course, all
governments are corrupt! Since man is fallen, so are his institutions. True,
but we do need to be reminded, especially when so 
many
Christians these days are riding a patriotic wave. They are so overjoyed to
have “one of their own” in the White House, and so many more in Congress, they
see the possibility of turning a corner and entering into a new era of peace
and social justice on earth. If that were so true, how could a President
propose a program that would knowingly hide the reasons for the failure of a
program and propose to make changes which would accomplish nothing more than
impoverishing the elderly and funnel billions of more dollars to the elites?
My objection would not be so strong with previous administrations, but when an administration cloaks itself in the “Christian” mantle and claims to be doing the right thing and is robbing us blind, it is time to say, “no, that is not right and that does not represent true Christianity at all.” But again, this is all a part of the deception. It almost seems as if the government is purposefully trying to bring down the economy. The way Satan works is to create the problem and then propose the answer.
The “Beast” of Revelation 13 has the whole world worshipping it, thinking it is serving their best interests.
11Then I saw another beast coming up out of
the earth, and he had two horns like a lamb and spoke like a dragon. 12And he
exercises all the authority of the first beast in his 
presence,
and causes the earth and those who dwell in it to worship the first beast,
whose deadly wound was healed. 13He performs great signs, so that he even
makes fire come down from heaven on the earth in the sight of men. 14And he
deceives those who dwell on the earth by those signs which he was granted to
do in the sight of the beast, telling those who dwell on the earth to make an
image to the beast who was wounded by the sword and lived. 15He was granted
power to give breath to the image of the beast, that the image of the beast
should both speak and cause as many as would not worship the image of the
beast to be killed. 16He causes all, both small and great, rich and poor, free
and slave, to receive a mark on their right hand or on their foreheads, 17and
that no one may buy or sell except one who has the mark or the name of the
beast, or the number of his name.
18Here is wisdom. Let him who has understanding calculate the number of the beast, for it is the number of a man: His number is 666.
This beast appears to be a lamb but speaks like a dragon. The antichrist will look and sound so good, so “down home”, so folksy, and sincere. He will sound good, logical – so credible that most buy his argument. In the end everyone – rich and poor, free and slave receive a mark. All commerce will come under his control. By the time it happens, it will be too late! In our next installment, we’ll talk about money! What is it? How do they make it? What does it mean to us?
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