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Friday, October 15, 2010

Retail Sales Plus

Okay, so the headline is +0.6% (+/- 0.5%) over August, and 7.3% over September 2009. Which sounds good enough. That, however, does not adjust for inflation which in fact does exist already.

With energy prices soaring, now is the time to revisit some history courtesy St. Louis Fed Fred:

The thick blue line is real retail sales.

And real retail sales are being controlled by energy prices.

Consumers can't borrow, so they are reacting by indexing their discretionary spending to their daily and weekly "must" spending.

This means that final demand will be quite weak next year.

Whatever brilliant academic theorizing lies behind the Fed's current currency wars, the reality is that US consumers are going to be very much the losers. They can't go out and get extra work to fix the family finances. They can't or shouldn't be borrowing to compensate for increases in their "needs" spending.

Lord knows they won't be borrowing off the equity in their homes. So they are going to cut back hard on their basic spending in order to compensate for expected inflation. Less money circulating = constrained job growth and less money circulating.

The Fed is unable to inject money into the economy in a way that circulates it through the economy, which is what would be needed to counter deflation.

Update: I didn't look at the Michigan Consumer Survey today, because I was doing other things. But here's an article about it:
The survey's barometer of current economic conditions was at the lowest level since November 2009.
"Personal financial expectations were near their all-time low, and the steep decline in buying plans was related to uncertainty about consumers' future income prospects," the survey's director Richard Curtin said in a statement.
This is not good news if you are a retailer. So I offer this as supportive evidence of my post. Consumers are going to overreact and try to build themselves a cushion when they see prices going up on food and fuel. Many are genuinely afraid of being cold and hungry, and even those who are not just mentally adjust their future expectations down.


Good analysis! CONtrary to what Bernanke believes, not all increases in retail sales are good news.

There is a silver lining though. Oil companies and oil exporting nations should be seeing profit gushers again. Woohoo!

I like reading about record oil profits almost as much as I like reading about record Wall Street bonuses. It's a joyous occasion when I get to read about both simultaneously.

Good grief. My word verification is "corping". Doesn't THAT just say it all.
Word association test:


1. Corpse
2. Coping
3. Corp Inflation (pun)
4. Corporation

And last but not least...

5. "All right, sweethearts, what are you waiting for? Breakfast in bed? Another glorious day in the Corps! A day in the Marine Corps is like a day on the farm. Every meal's a banquet! Every paycheck a fortune! Every formation a parade! I LOVE the Corps!" - Apone, Aliens

My word verification is "unted". Welcome to the new normal: The Unted States of America. We lost an "I" but we've still got one left, lol. Sigh.
Angry Saver - Corping is what a 66 year old with no job, an 0.5% return on his savings and a threatened delay in Social Security savings does, I guess. Sit in the dark and hope to die quick.

I was particularly overjoyed to hear from Reid that there is this big pot of money out there with which to pay Social Security. I wish he'd hand over the key to the special cabinet in which he's keeping it, because no one else seemed to know about it.

There are times when words fail us, but it is nice to know that in such times, word verifications will rise to save us.

"There are times when words fail us, but it is nice to know that in such times, word verifications will rise to save us."

It was enough to make me want to post again just to see the word I would get next.

It is "oxentop". No joke!

Just to make sure I understand it correctly I had to look up the word oxen.


"Oxen are commonly adult, castrated male cattle, but cows (adult females) or bulls (intact males) may also be used in some areas."

Yikes! Things could get very bad for the bulls if the stock market puts in an oxentop! ;)
Which tends to suggest a possible political use of the word "oxymoron".
The Fed is unable to inject money into the economy in a way that circulates it through the economy

Not unable, just unwilling. They inject plenty, but then pay the banks
to hold it in "excess reserves".

wiki: "0.25% simple interest on $800 billion is $2 billion, not $202 million as shown for 2009. But those expenditures pale in comparison to the lost tax revenues worldwide resulting from decreased economic activity from damage to the short-term commercial paper and associated credit markets."

It's just another part of FRS's propping up of the Banks. You see, we don't just need a financial system - we need this financial system with these players. Anything else just wouldn't be right!
Oxymorons abound!

Jobless recovery?
Controlled market economy?
Patriot Act? (Is that really how patriots act?)
Health care bill? (It's definitely a bill but who pays?)
Quantitative easing? (Is high priced oil easing?)

I was particularly overjoyed to hear from Reid that there is this big pot of money out there with which to pay Social Security. I wish he'd hand over the key to the special cabinet in which he's keeping it, because no one else seemed to know about it.

Huh? The finances of social security are fine. Medicare is a different story.

Don't fall for the bullsh%t argument that we can't afford social security in its present form. That's another ruse to allow the minority to further rip-off the majority.

The social security trust fund exists. The fact the funds were spent is irrelevant. ALL Government funds get spent. What's happening is that the minority that ended up with the social security money don't want to pay it back! They are trying to keep the price of Manhattan real estate (and other assets) artificially inflated at the expense of social security.

And don't fall for the b.s. from Mish, Denninger et al about "capital" formation. They're way off base. Their fiction is no different that the Keynesians and monetarist fictions they rail against.

Ummm, who exactly is it that you think has "the social security money"? And how do think the government can get it back from them without taxing the entire citizenry back into the stone age?

The FICA tax revenue for last 30 years is gone. Spent. Dust in the wind. Mostly on the Robert Byrd Memorial Rest Stop and various other boondoggles. All that's left is the naked, uncovered, obligation.
The FICA tax revenue for last 30 years is gone. Spent. Dust in the wind.


Again, the fact that the social security money was spent is irrelevant. All Government revenue be it from taxes or the sale of bonds gets spent.

When the Government raises money via a 10 year note sale they spend the money. According to your logic, those Government obligations are now worthless. Do you apply that same rationale to General Electric and other private entities that spend money raised by issuing debt? If not, why the double standard? Is it possible that bogus rhetoric has influence your thinking?

As for getting the money back I told you where it is - Manhattan Real Estate (somewhat tongue in cheek but the point holds). If we can preserve fictitious fortunes by preventing deflation, we can also preserve entitlements. And even if we don't fully prevent deflation, Government obligations are senior.

Seriously, the Government is taking on trillions in new debt obligations to prevent deflation and preserve trillions in ill gotten Wall St. gains. We can afford THAT, but we can't afford modest social security benefits that have actually been funded?

If people actually looked at the current state of social security funding rather than listening to Wall St. lies they'd very likely have completely different views. Social security has been in surplus for decades to account for the baby boomers. Taxing to "oblivion" is way off the reservation. Under most forecasts, the fund is actuarily sound for decades and only modest changes are necessary to provide funding for the next 80 years.
AngrySaver (aren't we all) and Neil seem to be talking past each other. At the risk of getting caught in the cross-fire ;-) allow me to suggest that they are both right and yet fumbling around for the crux of the matter: worker-retiree ratio.

As mentioned in the comments of the previous post, the demographics of FICA are, um, FIC-ed. I'm sure the one world order types and their useful idiots thought they would solve the problem with open borders, but they failed to account for worker productivity of those they let in.

In fact they've made the problem worse by sky-rocketing home prices everywhere but the rust belt and now the most productive class, middle class and upper-middle class whites, are having fewer children than ever and far below replacement. We are not as bad as China, Japan, Italy, Russia, and Korea, but that's not saying much.
When the Government raises money via a 10 year note sale they spend the money.

Precisely so. As you say, the Social Security "trust fund" is debt, just like any other government debt. It's an obligation, not a "trust fund", not savings. Social Security obligations are a future expense stream which must be paid by juicing more revenue from the taxpayer, the same as any other debt. It would be fair to argue that the expense is manageable, or it is beneficial to society, but it's not reasonable to call an expense a "trust fund".

If we can preserve fictitious fortunes by preventing deflation, we can also preserve entitlements.

Fortunately or unfortunately, Social Security payments are at least nominally indexed for inflation. That means that, unlike other government debt, we can't wish it away through inflation, the way the Fed can inflate the value of real estate, per your example. The Social Security payments go up just as fast as inflation does.

The only answers are to either repudiate the debt, in whole or in part, or to increase tax revenue.

I don't feel I'm talking past anybody. M.O.M. made a statement that perpetuated a common myth about social security - that since the money was "spent" the trust fund is worthless. Neil repeated the myth. I don't buy that line of thinking and I explained why. I also pointed out that social security finances are not in the dire shape that many "interested" parties would have you believe. Take a look for yourself. The social security trust fund is in decent shape by any reasonable accounting. If this depression never ends, well, that's a different story.


The only answers are to either repudiate the debt, in whole or in part, or to increase tax revenue.

More nonsensical thinking. Where do you get this hyperbole? Here's just one example that doesn't fit into your "either/or" statement: We could cut military spending and divert the revenues to social security. No repudiation, no increase in taxes.

but it's not reasonable to call an expense a "trust fund".

I think it's very reasonable as do millions and millions of current and future recipients. The social security trust fund represents surplus taxes collected in advance to account for demographic changes when future costs would exceed revenues. Allowing financial looters to CONtrol the narrative and divert those pre-paid funds is nothing more than another attempted public rip-off by Wall St. and CONservatives.

The sad part is that most people have no clue about how the system is set up. They simply parrot the advice of "experts" and insiders with agendas that say we can't "afford" it.

Come on people. We're not talking about a gold plated entitlement program here. Social security provides subsistence level income for average retirees. For about 2/3rds of retirees, it's their main source of income (around $900/mo). Depriving retirees of that money so that the price of beach sand in the Hamptons can remain artificially inflated is not only unconscionable, it's eCONomic idiocy too.
AS: Kindly cease your ad-hominem attacks on me. I am not a parrot, nor nonsensical, nor am I engaging in hyperbole. I am not a dupe of some cabal, nor am I trying to pull the wool over anyone's eyes. Quite the opposite. If you have something to discuss, then let's discuss it.

We could cut military spending and divert the revenues to social security.

OK, you got me there. We could divert money away from other governmental functions in order to pay the cost. But it's still an expense, not a "trust fund".

A trust fund, generally, is a collection of assets set aside for a specific purpose. The SS "trust fund" is simply a promise from the government to provide a welfare transfer payment to anyone over some age. Perhaps it's really important to provide this transfer payment--I'll not argue that here. Certainly the prospective recipients were told they could count on the money. But it's a transfer payment that must be paid entirely out of current revenue. There are no assets in the "trust fund" that can be sold to cover the cost.

By using the words "trust fund" to describe this arrangement, you are giving the false impression that there's no need to think about where the money will come from. Because hey, we've got assets in the "trust fund" to pay it out from.

The fact is, though, going forward Social Security payments must be made either from increased tax revenue or, as you point out, by reducing money spent on other government services. That means we have to look at the cost, and the cost is enormous--big enough to depress economic growth for decades, the flip side of the way the Baby Boom demographic has promoted economic growth for decades. If we want to leave the country better than we found it, we have to discuss this fact openly and plainly.
Sorry, meant to say "not just engaging in hyperbole". Obviously the "tax us back to the stone age" comment was hyperbolic.
I have never heard your point of view before. Tell me if I am restating it correctly.
Say I put all of my savings into TIPS and have enough to cover my needs until I die.
Neil would say that my retirement plan is broke because all I have is the promise of the government to pay me dollars, but they owe so much that they can never give me all the dollars they have promised me. All I own are the promises of an institution that is clearly not as good as its word.
AS would say that I am good shape. If my portfolio was in bonds issued by GE, all I would have are promises from an institution. Treasuries are no different. And, AS would say, the promises made to SS are just as good.
All bonds of any type are debt, that is, a promise by an institution to give money later. Similarly, stocks only have worth because the company promises to be worth enough later so that I can sell the stock and get money. The only value that anything that is saved has is the promise that I can sell it later. So SS is just like any other bond or treasury or even stock.
In one sense, AS is right. The gov't, if it chooses to honor its promises, can always print the money if worse comes to worse. GE may default and really have no ability to pay its bonds. Or the company may go bankrupt in which case its stock is worthless. The dollars SS pays may not be worth much, but at least they can always be there if the gov't want them to be.
But Neil is right in this way. GE has only made as many promises as it is likely that it can honor. It cannot print the dollars, but it has evaluated its cash flow and the market has decided the bond has value. The gov't appears to have made so many promises that it will not be able to print enough dollars to honor its pledges.
We all are relying on others to honor their debt. We shall see.

No, that is not what I am saying at all. In your example, you have assets in your retirement account. They may be good assets, they may be bad assets, but they are at least notionally assets.

An appropriate analogy for the Social Security "trust fund" would be as follows:

Let's say I have an IRA plan which I keep in a non-interest-bearing account (for simplicity's sake), to which I contribute $2000 annually. Now, I run short at the end of every year, so in order to get the kids' Christmas gifts, I borrow $1500 from the IRA every December. I do this every year for 30 years--$2K in, $1.5K out.

Now, after 30 years of this I want to retire. Nominally, I have an IRA with (30 X $2K) in assets, that's $60K. Unfortunately, the cash in there only amounts to (30 X $500), which is $15K. I owe the IRA account $45K, because I was spending that money the whole time. Guess what! I'm not retiring, because the guy who has to pay the debt is me!

Get it? If you owe money to yourself, that's not an asset. If the government owes money to itself, that's not an asset either. In my example, I have to continue working to pay back the $45K to myself. When it comes to Social Security, we have to come up with increased revenue or reduced expenditures to pay the SS obligation just as if the "trust fund" had never existed. Because for all practical purposes, it doesn't exist.
But if you can print money, then your IRA is okay. Your account is only as good as the one making the promise. In the case that you have described, you bought 0% bonds from yourself. In addition to getting a bad rate, you also bought bonds that were going to mature after the company was scheduled to become non-productive (aka, retirement). So the retirement plan of loaning money to yourself at no interest is plainly a loser.

Compare that with the retirement plan of loaning money to GE. You get an interest rate. And there is a good chance the company will be able to pay the bond at its term because a) it will hopefully be in business and b) it has not sold so many bonds to so many people that its liability surpasses it income.

SS is somewhere in between. You get a rate that is great if you live a long time or is crappy if you die at 61. (Ironically better for whites than blacks, as a sidebar) Will the US "be in business" when you retire? Presumably because countries don't disappear. You would say that the real problem lies in the amount of debt. The US has so many obligations outstanding that SS will never be repaid. Between the governments operating costs (like defense, etc) and preferred debt (Treasuries), there is no way the gov't can pay back its non-preferred debts (SS). So we're screwed.

But here is AS's point. The gov't can print money. If the gov't chose to honor it's "debt" to the SS trustfund, it could print the money it needs (say through 1000 year bonds sold to the Fed at 0%). Unlike the IRA in your example, the gov't can put money in its IRA. Unlike GE, the US is sovereign and can pay SS as long as it likes.

I am not saying that the gov't can make value. The big question is if the printed dollars will be valuable enough to buy the dogfood that I am so looking forward to eating as a retiree. But the gov't can make dollars. The debt is in dollars. The SS trustfund was borrowed from in dollars. Those are not a problem.

Fine, the government can repudiate the "trust fund" debt it owes to itself (along with all other debt and, by the way, destroying the private savings of all those soon-to-be retirees) by inflating the currency. That increases nominal tax revenue which makes the debt easy to pay off.

In that case, once again, the "trust fund" doesn't do beans to pay our Social Security obligations which are indexed for inflation. Nothing was helped by simply repudiating that debt.

Face it--the "trust fund" doesn't help make Social Security solvent. Buying GE bonds has nothing in common with this situation. Social Security is an expense which one way or another must be paid out of current federal tax revenue.

We need to have an honest discussion about how, and how much, to pay. While we're at it, we will probably have to have an honest debate about why we need to have Social Security in the first place, and who exactly should receive it. Otherwise we will all end up, as you say, eating dog food in our later years.
I have never heard your point of view before.


All I've done is state facts and refute fiction. It's very telling and sad that the fundamental facts and truth come as a surprise to the average person.

Ask yourself why you've never heard my point of view before. Ask yourself why the simple facts have been so distorted. Ask yourself who benefits from the distortions?

The majority think they are above average. The majority think they are well informed. The majority think they are immune from propaganda. It's not just what you don't know that they use against you. It's what they make you think you know too.

One more thing. Be careful with the CONcept of "printing" money. It might not be what you think it is.
We need to have an honest discussion about how, and how much, to pay. While we're at it, we will probably have to have an honest debate about why we need to have Social Security in the first place, and who exactly should receive it.


Come on. We've already had THAT debate and it was settled YEARS ago! As a result, over $4 trillion was basically taken out of wages and invested in interest bearing Government bonds to pay for future expenses that would exceed revenues. The money was raised in advance so as not to unfairly burden future generations and stunt future economic growth.

What a CONcept you're espousing (theft, albeit disguised). I'm sure insurance companies would love to apply it! After any and all insured events, insurers would re-negotiate terms and discuss how much the insureds are NOT going to get.

Exactly who benefits from re-opening this debate now? The minority that ended up with the $4 trillion or the majority that lent it in the first place?

Neil, I don't frighten easily, but your distorted views and twisted logic scare me. I know you don't think you are part of a cabal, but it's hard for me to believe that these are actually your personal views.


Don't invoke the "ad-hominem" defense to deflect legitimate criticism of your statements. That was lame. And please don't fall back on the the specious "future eCONomic growth" scare tactics either unless you want to provide quantification. Economic liars have already gotten way to much mileage out of that fiction.
Angry Saver:

I think this discussion is over. You haven't answered my statements logically--probably because you cannot. If my logic were as "twisted" as you say, you should be able to refute it easily. You only call me a liar and a cabalist. That's not argument, that's not discussion, you're just rude and obnoxious.

'Nuff said.
Neil and AS,
Tone aside, I have found this discussion intriguing.

Clearly, if the gov't monitized $100 or even $10 million, the value of the dollar would not be affected. The question is, what amount can they monitize without inflating the value of the dollar faster than they can send out SS checks. There are rumors that they have monitized trillions in the last couple years. It seems that AS would say that the printing press can keep up with inflation. Without putting words in his mouth, it seems that Neil says not.

I would say that the magnitude of the obligation of SS is high enough that Neil is too close to being right for comfort. The important point, possibly, is not whether they can or cannot, but rather that if they try they will take value away from everyone. If they up SS payments to $10,000 a month, then the responsible person who saved GE bonds so that he will have an income of $5,000 a month just found his relative wealth cut significantly. The dollars that GE pays out are indistinguishable from the dollars SS pays out. Might this be why AS is so angry?

Also, aren't GE bonds an expense that must be paid out of current sales revenue?

Yes, the interest on GE bonds is an expense which GE must pay.

The equivalent GE analogy (which might be better than my IRA analogy) is if GE borrowed money from GE Capital (a wholly-owned subsidiary of GE) and spent it on ongoing operations. GE spent the money and must repay GE Capital.

That debt will show up on GE Capital's books as an asset that it (and therefore GE) owns. This is an accounting fiction, since GE just owes itself and any payments it makes on them show up as income from GE Capital. If GE simply extinguished the debt, it would have no net effect on GE's total cash flow (other than perhaps a small cost for maintaining the books, and we'll ignore potential tax effects). If an investor were looking at GE's balance sheet, he would see those bonds as an asset on GE Capital's line item, and a perfectly-balancing liability on GE's overall balance. Thus, he would ignore them completely.

That is almost precisely the situation we have with the Social Security "trust fund". The "trust fund" doesn't exist as a practical matter. The Social Security obligations do, they must be paid out of current tax revenue, and they are enormous.
As to the question of whether or to what extent the government can monetize its Social Security obligations, I have no idea. That depends a great deal on demographics going forward. I suspect there's a lot of leeway for the next ten years or so, not so much after that.

But that's a completely separate issue from whether it does so by simply having the Fed purchase Treasuries, or whether the Fed purchases special "trust fund" bonds. The effect is the same either way, whatever the effect might be.
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