CPI- The Plundering of Social Security

on 09 17, 2010

This is not a new concept, but this should be understood by every person thinking that they will get back everything that  they put into Social Security.  First, Social Security was designed to be safety net for our citizens, not something that every citizen should rely on for their retirement.  As we saw yesterday our country has set a new record for people living in poverty conditions.  So we have close to the record number of people unemployed, record number of foreclosures, and record number of people living in poverty.  I love how the stock market sees all of this bad news as bullish material.

When the market doesn’t care and can absorb all of the news, then you should care more than ever.  This is when there are forces that are out of our control that are driving the markets.  it may be too hard to ride the bullish train with them, but consider using some type of call option as a cheap shot if the short squeeze continues.

So how have so many people gotten to this poverty line…well that could be a very difficult thing to answer because there are so many factors as we are facing the Great Depression 2.  I know technically economists say we are not in a depression, but if you look deep down at where we are heading you will see.

One main factor of the poverty line is the standard of living.  Our government has increased the amount of dollars produced in our country to record levels.  They have thus destroyed 95% of the value of the dollar.  With all other things held constant, this should drive the cost of goods and services higher, but it hasn’t. This is basically an inflationary measure.  The more the goods and services cost, the higher the inflation rate goes.

In fact since our government has started to manipulate numbers in the 1980s, they have managed to keep our inflation in check.  The question is how and why would the government do this?

The main reason is debt.  Debt is the gun pointing at our economy.  Interest on that debt is the bullet for the gun.  Inflation is the pulling the trigger.  In order to keep up with inflation, interest rates should rise.  If inflation is theoretically held in check, then interest rates can remain relatively low.

Our national debt should be of great concern to every family in this country.  We are facing the proverbial double edge sword in many ways of wanting inflation and not wanting inflation.  Inflation will drive interest rates higher, thus increasing what we collect from our savings, but it would also increase the costs of goods and services.  Home buyers and businesses want low interest rates to buy that house or expand business through debt.  If the debt repayment is low then the home owner and business has low expenses, historically speaking.

As we have seen in other countries, like Japan, rates can remain low for an extended period of time.  If inflation is held in check and artificially low levels and interest rates are held at these levels, then our savings will suffer.  Our cost of living will also suffer.

Everyday more people are relying on Social Security to survive.  Every person that gets Social Security should be getting their fair share as they have paid into the system.  What if the government short changed everyone a small amount? How much have they saved?  Social Security payments are inflation adjusted.  If the government can keep inflation down, then they have to pay every recipient less than what they are owed.  Well how bad can it be?

Let;s look at the above chart to extract how bad it could be.  Shadowstats.com says this about the Chart:

The CPI chart reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.

So over 30 years our government has kept inflation in check by more than 5%.  Personally I think these numbers are low.   So in essence as our aging population has increased over the past 30 years, our government has been able to plunder loans from Social Security to offset their overspending.

Now that we are at historically low rates and we have increased our national debt at record levels for the past two years we need to realize what interest rates will do to this debt.  An increase in rates will force us to pay higher interest rates payments on our debt.  We finance this debt through treasuries, and if we are moving rates higher, then our buyers of treasuries will demand rates of return.

The US has been having trade negotiations with China over moving their currency exchange rates.  I watched two talking heads on CNBC discuss this and in the end their discussion was worthless, but it has to get you thinking.  Our country relies on China more than ever.  A Chinese official basically said that in any trade dispute, that China can sell Treasuries at anytime.  This would cause a massive spike in interest rates, because there would be no buyers.  The Fed is already one of the main buyers of Treasuries.  they can not afford to buy the over $800 Billion Treasuries that China now holds.  If the rest of the world knew that China was going to sell, then it would cause a massive sell wave.  We can no longer rely on China to buy our treasuries and produce all of our goods.

Even if the rates do spike, will the government let the inflation spike with it?  Deflationary pressures from falling home prices only plays a role to the average home owner, it is not calculated in the CPI.    There is a reason that Gold continues to make new highs.

There is not much anyone can do to fight the inflation adjusted plunder of Social Security.  All we can do is fight big government policies to get our country back on track.

If you think rates will spike, then check out TBT.

Gold continues to spike and you may want to check out silver, SLV.

Comments (1)


  1. […] have spent their savings and can no longer rely on their pensions, and social security.  Read the Plundering of Social Security.  This very low maintenance approach worked for a long time as long as people believed in the […]

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