Bumbling Baby Boomers

Although the Social Security crisis has caused countless debates and much serious thinking, the Mogambo Guru points out that this is by no means the country’s biggest problem – if it’s truly a problem at all…

Nursing a killer hangover and flipping through the TV dial in my boredom, I ended up watching C-SPAN 2, which is this strange television station that shows what is supposed to be the floor of the U.S. Senate, and they have these actors portraying elected officials in this weird format where everybody is a nitwit.

In this episode, I vaguely remember watching what is, I assume, a formal debate between two Republicans and two Democrats about the Social Security "crisis." It was painfully obvious that the Democrats, as is their brain-dead wont, are idiots, and they do not have the slightest comprehension of the issue, or, if they DO have the slightest comprehension of the issue, are not the least bit embarrassed to conceal the fact. The Republicans, although they were much more well-informed as to the problem, are equally moronic about how the stock market works, as is a crucial tenet of the Social Security Privatization, for which they are so hot to get passed into law.

The Social Security Surplus: This Is a Crisis?

To clear this up, the Mighty Mogambo (MM) will take some of his precious Mogambo Time (PMT) to explain that the "crisis" in Social Security is that the Congress is aghast that they will have less and less money to spend on their collective idiocies for the next 45 years. This is because the Social Security tax (and it is a tax, regardless of what anybody tells you) to fund the Social Security welfare program (and it is a welfare program, no matter what anybody tells you) produces more than enough money to fund this welfare program for the next forty or fifty freaking years! They all agree on this one point. This is a "crisis?"

Now, for normal people like me, a "crisis" is something bad that is either happening right now (such as my wife banging on my head with a skillet, screaming "Maybe this will knock a little sense into your damn thick head!"), or a crisis is something bad that will happen very soon (such as my wife planning to hit me on the head with a skillet as soon as she gets back from the kitchen with it). So Social Security, for the next forty or fifty years is in fine shape, which is more than you can say for me. Or the skillet.

But this is not about me and my comic misadventures with kitchen cookware. So, and follow closely here, I swerve to get us back to the topic, and reiterate that more money is coming in from SS taxes than is needed, and money will continue to come in for, as we recall from a previous paragraph, the next forty or fifty years. But Congress takes the rest of the money, calls it a "surplus," and spends it on their collectivist/socialist stupidities! Thus, a surplus is reduced to, in round numbers, zero! It’s all used up! But they act as if there is actually some money to "protect!" Hahahaha! I told you this was funny stuff!

Like waking up in the morning and looking in the mirror, this is the ugly fact of the matter: The Social Security debate is NOT about saving the Social Security welfare program in the future by boosting some mythical "credit balances" in the "trust fund," because there is no freaking money in the trust fund and there never will be. Some is spent by giving it to the current Social Security beneficiaries, and the rest is spent by Congress, which thinks that (and this is proof of their incompetence) because they put a "special IOU" in the "trust fund", that it is as good as money! Hahahaha! Even President George Bush, who has every incentive to lie, admitted, "The trust fund is just an empty IOU, just a piece of paper. You pay your payroll tax; we pay for the people who have retired, and if there’s any money left over, we spend it on government. That’s how it works."

So where is the crisis? The "crisis" is, therefore, that this glorious "surplus" will be gradually reduced, year after year, as more and more seniors start collecting their Social Security welfare checks, and fewer and fewer worker contribute a larger and larger portion of their wages. At this point, if you think that this is still not a crisis, then you are right! Allow you gaze to follow the Mogambo Pointing Finger (MPF) to the real "crisis", which is that the Congress will then have less and less to spend on themselves, their friends, and their socialist idiocies, as year after year they will have even less and less to spend. Then, finally, after the forty or fifty years have passed, they will have nothing, zero, zip, zilch to spend, because that is when the "surplus" disappears.

The Social Security Surplus: Where the "Surplus" Went

The problem is that erstwhile "surplus" was not spent on a pleasant day at the beach. No, it was spent on creating enormous, permanent programs, all staffed by people who went out and bought houses, and are raising families because they think that this program is permanent, and there is also a whole cohort of the "private" economy that is selling goods and services to these programs, and all of THOSE people went out and bought houses and are raising families because they, also, think that the programs are permanent. But it is impossible to keep these programs permanent when you know you will have less and less money coming in.

On the other hand, the idea to force personal savings accounts down the ravenous maw of the gluttonous American population is a blatant attempt to force people to put money into the stock and bond markets. And it will be done, one say or the other. If we do not, then these two ridiculously overpriced markets will "revert to the mean" and fall to their true values, which would wipe out the entire American economy, as financial services and government ARE the economy nowadays.

So, when you cut through the lies, stupidities and outright frauds, the entire "Saving Social Security" exercise is to 1) get at least the same, and hopefully more, money for the Congress to spend since the Social Security program will be throwing off smaller and smaller "surpluses", and 2) funneling lots of money into the financial services sector of the economy, since it already produces 40% of the corporate earnings in the whole freaking country. That is all there is to it. Simple, huh?

Even AFL-CIO President John Sweeney criticized the Bush privatization plan, calling it "a risky scheme for America, but a sure bet for the financial services industry."

The Social Security Surplus: The Stupidity of the Baby Boom Generation

But it is also another blistering indictment of the stupidity of the Baby ("We Love Everybody!") Boomer generation, as once again try and pump up the economy via mandating that people put more and more money into retirement plans, so that we can get a little short-term pleasure from watching our assets go up in price, and maybe that will make our houses go up in price, too, so that we can take some of that additional equity and borrow it, which we will because interest rates will be low, low, low as a result of our buying so damned many bonds with this forced investment, then we can take all that wonderful, glorious money and go shopping! And we will buy more consumables and gobble them up, gobble gobble slurp!

How embarrassing to be a Baby ("It Takes A Village") Boomer.

From another perspective, namely the Up Close And Personal view, Social Security is like when I tell my kid to get a paper route and start making some money mowing lawns and babysitting somebody’s brats. And I will, as the benevolent father who loves her and wants to protect her, will take – poink! – a sixth of everything she makes, off the top. She starts yelling and screaming, "Mom! Daddy took a sixth of my money, and he won’t give it back!" and so my wife yells up the stairs for me to give the money back, and so I go out into the hall and patiently and calmly explain my terrific new plan to Save Our Daughter’s Future, which I cleverly call The Mogambo Plan To Save Our Daughter’s Future (MPTSODF), by yelling back, "Shut yer hole, ya crazy old bag, before I come down there and shut it for you!" Which was apparently the wrong thing to say, because the next thing I know, I hear shells being loaded into a pump 12-gauge shotgun and she is yelling, "You stay right there, mister! I have had all of the Mogambo crap I am going to take!" Deciding to test whether the window is a good emergency fire exit, I quickly found myself outside, and so I went to the bar and had a few rounds, and then everything started looking better. I wrote an IOU on a bar napkin, which I thought was really poetic in its own way, but I probably won’t get any credit for THAT, either!

But sitting there on that barstool, hour after hour, gave me time to think about how I will tell them that I am taking this money ONLY to save it for her college and eventual retirement, and how this is in her best interests, and how everything will be wonderful, if you trust me. I mean, I give a little of the money to her older sister, who is obviously closer to needing an education and a retirement, and the rest I spend on myself and my hoodlum friends. But instead of admitting that I am stealing her money outright, because it sure as hell LOOKS like I am stealing her money outright, and since everybody knows the kind of dirty, treacherous back-stabbing gutter-rat that I really am, I will leave the aforementioned IOU in the piggy bank! Then it will NOT be stealing, see?

Then when she gets ready to go to college, and she looks into the piggy bank, and all that is in there are these IOUs that smell like stale beer and cigarette smoke and one of them has the phone number of someone name Trixie written in lipstick, which is a lot harder to explain than you would think. Then, when she is grown and banging on the door, shouting, "Daddy! Wake up! Where is all my money?" then all I have to do is tap her younger sister on the shoulder, hustle her lazy butt out the door to get a paper route, pick up some extra money mowing some lawns, and babysitting somebody’s brats. Then I will take a FIFTH of HER earnings, which is more than enough to pay back some of the IOUs, and there is still plenty still left over for me to spend on myself and my hoodlum friends! Whoopee! And then I can take my new-found expertise onto the campaign trail, so that I can get elected as a Congressman from one of the blue states, which actually believe this kind of crap, and then I can parade around and explain how I want to Save Social Security by doing this exact same thing, and everyone will love me, and re-elect me year after year after year.

Regards,

The Mogambo Guru
for The Daily Reckoning

April 18, 2005

Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter, an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and other fine publications.

We thought we heard the fat lady clearing her throat on Friday. The Dow closed the week barely above 10,000; it’s lowest level since the last elections.

"My money is in real estate," said a 38-year-old pharmaceutical rep from San Diego, "because I got tired of seeing my income statement from my mutual fund go down."

The man must be delighted with himself. Stocks have gone nowhere in the last seven years. And recently, they seem to have resumed their long march back to where they started 30 years ago. Back then; you could buy a dollar’s worth of earnings for only $6 or $7. Now, the same earnings would cost you $20. But the price of earnings is falling, we believe; the bear market is back and will probably stay with us for a long time.

"Finance Officials Try to Calm Markets," said an AP story over the weekend. Look for many more attempts to tell investors that everything is okay. The trade deficit – no problem. The dollar – don’t worry about it. Real estate bubble – are you kidding?!

Stocks in China and Japan are falling…and the U.S. commodities are dropping, too. The one thing, the only thing, you can still count on is real estate, right?

"You’re not going to lose money on property," the San Diego paper quotes a young man who just bought five condos and one $1.6 million "fixer-upper." He plans to spend $100,000 on cosmetic updates to the house and sell it for more than $2 million. As for the condos, he plans to flip them at higher prices. In La Jolla, non-residents, that is to say "investors," bought 37% of recent condo conversions.

"In the long run, you can’t lose," said another condo flipper. "I’m buying for my children because I know I can make a lot of money."

But why is real estate such a sure bet? Because there is a huge demand for it, say the bulls.

And yet, from King Report comes this note:

"In their analysis of the U.S. Census Bureau’s housing data, Raymond James housing analysts Rick T. Murra, Paul D. Puryear and Andrew Fenton write, ‘…there are more than 5.1million vacant housing units either for rent or for sale as of the end of the fourth quarter. Furthermore, there are more than 6.5 million vacation homes, which remain vacant for most, or at least some portion, of the year, and represent an additional potential inventory overhang. With nearly 12 million empty housing units in the United States, we find it implausible to conclude that there is a housing shortage of the magnitude that would drive the recent price escalation…’

"…. the investor has overpaid in anticipation of future price appreciation and the rent necessary to cover carrying costs is far in excess of what the market will bear. As this ‘hidden’ inventory is now larger than at any time during the past 10 years (as far back as the Census data is available) and likely may be at an all-time high, we believe the potential exists for a significant amount of supply to return to the for-sale market and not only exert downward pressure on prices, but also reduce demand for new housing production."

In Orange County, California, the median house rose to $565,000 in March. That is an increase of a 16.5% annual rate. Too bad the median family’s income did not rise too. But based on the latest data, the median family seems to have not one but two houses it can’t pay for.

More news, from our currency counselor:

————–

Chuck Butler, reporting from the EverBank trading desk in St. Louis…

"I believe that this is the day in history that Paul Revere rode through the streets of Boston warning that the Red Coats were coming…see the connection? According to Mr. Goodale, China needs their own Paul Revere!"

————–

Bill Bonner, with more views:

*** We went to see the fat lady sing on Sunday night. We sat through several sweet arias and cantatas until our backs legs, our legs twitched. We felt superior enough by the entr’acte that we were able to slip away and go home.

"A little culture goes a long way," said Henry.

*** At church on Sunday, the priest was developing an idea. "Turn away from this lost generation," St. Peter told the crowd, "and you will be saved." We thought about Hegel’s ‘zeitgeist;’ about how a certain sentiment infects a whole people at one time…and then leaves the next generation alone. One generation is mad for politics and war. The next is happy to plant cabbages build cottages. One generation is disciplined and frugal; the next lives it up, spending its parent’s savings and heading for insolvency.

But the priest was so verbose the faithful could barely stand it. A woman in the back collapsed onto the floor. And so the poor priest had to interrupt his sermon: "Is there a doctor in the church?" he asked.

Later, when it was time for Holy Communion, the woman was still on the floor. Getting in line to receive the host, Edward got sidetracked. He stood and gawked at the poor woman lying on the floor, aided by a "toubib" in his church clothes.

"Don’t stare at people when they’re in distress," we told him.

"Why not?" he wanted to know, "That’s when they’re most interesting."

*** Dan Denning gives us an update on his Super-Stock option hot-streak…

"Right now, Strategic Options Alert’s three open ETF positions are up an average of 20.54%. Our five most recently closed ETF positions were up an average of 32.69% when we sold them.

"Those are very respectable gains – especially considering the ‘doldrums’ market we’re treading in right now.

"But – you should see what happens when I apply the power of option leverage to ETF’s…with options, not only can I immediately act on a near-term trend that goes against my long-term opinions…I can also squeeze massive gains out of ETF’s in very short periods of time, like these recent examples:

"129% in 2 weeks, 105% in 37 days, 84% in 24 hours, 110% in 49 days, 113% in 6 days, and 62% in 5 days…"

*** A British reader writes in defense of the empire:

"As a British citizen, I find myself deeply in disagreement with Bill – a most unusual state of affairs. I am willing to accept that Wilson was behaving irrationally, but only because there was no good enough reason for the United States to join in the European war.

"’Helping the democracies beat the despotism,’ however, would be a fair description of what Wilson was urging. Britain and France were both democracies, even if Britain was a constitutional monarchy (as it still is today). Germany had a king and a parliament, like Britain – but that is as far as the resemblance went. The German Kaiser decided his nation’s grand strategy, and the parliament and his ministers carried out his wishes.

"In Britain, the ministers ruled with the approval of parliament, and the king was a dignified rubber stamp. Bringing in the Irish, the Indians, and the Egyptians was an unfair rhetorical device, and one unworthy of Bill. As for Ireland, it had its own parliament until the 1801 Act of Union, after which it sent one hundred MPs to Westminster.

"And please don’t quibble about the restricted franchise – when did women (let alone slaves) get to vote in the USA? India and Egypt, of course, had never had anything even vaguely resembling democracy before Britain conquered them. So why should it have tried to implement democracy after it took over control? Let’s see: Britain took over India in the 18th and early 19th centuries, and Egypt in the late 19th. Several years after that, the United States invaded the Philippines – killing about 250,000 people in the process. Did it install democracy there? Did it hell.

"So please don’t pull the great American "holier than thou" routine, about how the British are wicked imperialists and the Americans are nice, kind, democratic traders. Comparisons between different periods of history always run the risk of anachronism: not long ago, anti-Semitism, slavery, male domination and despotism were social norms in most countries. The United States in 1776 had a nice, shiny new Constitution – but how many of today’s ‘human rights’ did it recognize? The British did set up and exploit an empire in the 18th and 19th centuries, and it did not dissipate until the mid-20th. But don’t forget that the United States invaded Vietnam and killed over 3 million people; specifically to prevent democratic elections taking place; and that happened after the British gave up their empire.

*** Your editor stands up for America: The writer mistakes our point…and then makes it for us. We do not argue that the British were wicked while Americans were saints. We only wished to say that the British were not necessarily better allies in a fight for democracy than the Germans…and that Wilson was a jackass for leading America into a war in which it had no business. Americans have no more interest in democracy than the British or the Germans; we like it when it suits us to like it. But his recollection of Vietnam is incorrect. There was a civil war in Vietnam. Most of the 3 million deaths probably were not the fault of the United States, which by the way, actually tried to get North Vietnam to agree to general elections for the South.