September 10, 2009

Three impossible things after breakfast

As always, a plethora of topics presents itself. I can think of three things, which is not as impressive as the Lewis Carroll character who could think of six impossible things before breakfast. But I try.

For example, and here's a h/t to Dan: in August the Social Security fund went negative to the tune of $6 billion. Were you aware of that? It does not seem to be receiving much play in the news. It is, however, an absolutely titanic (heh-heh) development. The Social Security fund is a piggy bank for Congress. When they run out of money (that is, on Day 1 of the fiscal year), they reach into this fund and take out the FICA taxes you pay in and replace it with an IOU. These IOUs, which presently stretch from here to Neptune, are in lieu of, you know, the cash you paid in. How will the IOUs be repaid (another way of asking: what the flock is the Social Security Trust Fund exactly?) and the difference made up between payments to present retirees and the inflow from cash-strapped workers? By floating more IOUs, of course, what we call "Treasury obligations."

Right now you might be thinking to yourself: is there a material, relevant difference between this approach and what Bernie Madoff is doing a hundred fifty for? Well, let's subject it to a little lawyerly dissection. In both cases, the Perp (the Treasury or Madoff) has the same problem. People who invested earlier want their money back, with interest. The Treasury (and Bernie) no can do - they don't have the money on hand. Bernie spent it on villas in Palm Beach, Montauk and France, the Treasury (through its mafiosi in Congress) on cruise missiles, overseas bases and the F-22. So far we're tracking nicely. So what to do? Bernie kept scamming investors and used their money to pay off the earlier investors. The Treasury floats more notes & bonds to the Fed, the Chinese and Saudi Arabia, although the latter two "indirect bidders" may also get the actual money from the Fed, when the Fed buys the mortgage-backed securities (MBS) which these FCBs (foreign central banks) bought from the Ponzi operations known as Fannie & Freddie.

Is this at all confusing? That's what criminal trials are for, to parse the evidence and break it down into easy-to-follow charts and exhibits. The Treasury & Fed, and their operational arm, Congress, hope you won't go to so much trouble. Still, it's difficult to see, so far, what real difference there is between Bernie and Eraserhead (Tim Geithner). Both are selling investments (in Bernie's case, the Blue Sky itself; in Tim's, the fraudulent promise to pay back what the Treasury will never in fact pay back, i.e., the national debt). All that Eraserhead can actually do is keep adding to the debt the Treasury has already accrued in order to meet the demands of investors who "redeem" and a Congress with a ravenous appetite for huge military expenditures. When Madoff's early marks made demands for redemption, the game was rolled up by the FBI. The federal government, however, is the FBI, among other things, so there's no one to roll them up. Could this explain why the SEC slept through Madoff's 20-year Ponzi scheme? It just seemed like S.O.P.

You can see that the last thing the Treasury needs right now is to discover that a reliable slush fund (your FICA payments) has turned into a really draggy debt. Where the hell are they supposed to steal money now? Going back to the analogy, which seems to have legs, the FICA "trust fund" is a little like one of Bernie's easy touches, a cousin or something, where he could go when the pressure got intense from some stranger who wanted to see the long green. As in Bernie's case, what's causing the tide to go out, revealing a vast shorescape of old tires and broken whiskey bottles, is the Tasered American "consumer" economy. People aren't paying in FICA taxes because they got no income.

The whole Social Security scam wasn't supposed to "go negative" until about 2017 under the fantasy projections of the Congressional Budget Office; that is, the FICA slush fund was supposed to be around till then and not become another dreary obligation. August, 2009, is a little sooner than planned, all must admit. Hey look: they can "seasonally adjust" the deficit and prove there will still be a surplus for the fiscal year ending in about 20 days. Just you wait. And for fiscal year 2010, beginning in 21 days? Well, we've done some projections based on the rapidly improving economy and it doesn't seem to us there's anything to worry about right now, or in 2010, or...look at this glossy brochure! And I can guarantee results, a comfortable 12% return on your money made possible by our proprietary investment strategies which take advantage of, hey, where you going? And who are you calling on the phone?

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