No COLA – Bernanke gets Trumped?

Bruce Krasting's picture Submitted by Bruce Krasting on 10/12/2010 07:46 -0500

Ben BernankeGross Domestic Product

Social Security announced that there will be no increase in benefit levels for another year. The reason? Deflation. Based on the Cost of Living index no increase in checks is justified. You might get an argument on that from the 60+% of the beneficiaries whose primary source of income is SS. This will impact the macro economic picture.

In the period 2000-2008 the average COLA increase was 3%. Because of the big eco dump it has been zero for 2010 and now again for 2011.

SSA will pay ~$700b in benefits this year. 3% of that comes to $21b. That is a pretty important number. Most of the SS checks are spent. Little of it is saved, so this will impact consumption on a nearly 1 to 1 basis. $21b is 1/4% of our GDP (includes multiplier). Poof!

Does this matter? Sure it does. Economists who forecast growth will have to knock down their numbers by at least ¼% as a result. There would have been some multiplier affect from the extra spending, now there won’t be any. Between the cummulative impact of two years of no increases and the multiplier this could be a drag on GDP by 1/2% for 2011 versus what has been assumed.

We don’t know what Ben B will do in a few weeks, but we can sort of guess about what is coming. It will be a longer-term commitment to acquire Treasury bonds. The high-end estimates are about $100b per month for a year. Something over a trillion in all. Using those kinds of numbers, I have seen estimates that the impact will be a positive to GDP to the tune of a lousy ½%.

So for those that have been believing that Bernanke has written the economy a put, look again. You just got trumped, by of all things, Social Security. Big Ben can’t row quick enough on this river. The water against him is moving too fast.

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by Clark_Griswold …
on Tue, 10/12/2010 – 08:45
#642913

look kids Big Ben….

Login or register to post comments by johnnynaps
on Tue, 10/12/2010 – 09:25
#643022

Classic!

Login or register to post comments by Cpl Hicks
on Tue, 10/12/2010 – 11:03
#643334

lol!

Login or register to post comments by whatsinaname
on Tue, 10/12/2010 – 13:33
#643783

wonder if SS checks also cause a midnight rush of seniors at end of month in stores like walmart ?

Login or register to post comments by SheepDog-One
on Tue, 10/12/2010 – 08:48
#642918

AH yes, the old ‘starve grammy and gramps to death’ ploy.

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 09:40
#643064

culling the herd.  oh, the joys of central money planning!

Login or register to post comments by Bananamerican
on Tue, 10/12/2010 – 09:54
#643118

WAR!

HUH!

GOOD GAWD Y’ALL

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 10:15
#643195

funny!

Login or register to post comments by cowdiddly
on Tue, 10/12/2010 – 14:03
#643910

Funny how the inflation numbers change when they vote on the congressional payraise every year. 

Login or register to post comments by alexwest
on Tue, 10/12/2010 – 08:48
#642919

good..

Login or register to post comments by Sancho Ponzi
on Tue, 10/12/2010 – 08:49
#642926

Leo:

$21 billion is 1/7% of GDP.

Login or register to post comments by taraxias
on Tue, 10/12/2010 – 08:55
#642944

Leo??????

 

Login or register to post comments by papaswamp
on Tue, 10/12/2010 – 09:13
#642991

Maybe the total GDP declined from $14 Tril?

Login or register to post comments by Bruce Krasting
on Tue, 10/12/2010 – 09:20
#643014

Yes, but there is a multiplier that has to be taken into consideration. I think that any extra money paid by SS has a high multiplier, as the money is spent right away. Similar to food stamps.

In congressional testimony given in July 2008, Mark Zandi, chief economist for Moody’s Economy.com, provided estimates of the one year multiplier effect for several fiscal policy options. The multipliers showed that increased government spending would have more of a multiplier effect than tax cuts. The most effective policy, a temporary increase in food stamps, had an estimated multiplier of 1.73.

I should have been clearer on how I got there.

Leo…..

Login or register to post comments by ATG
on Tue, 10/12/2010 – 10:35
#643246

The multiplier is below 1, having fallen off the cliff since 2008.

Ergo, no money multiplier effect.

Boskin et al revised CPI down in 1981 under Reagan to reduce COLA benefit costs to Military and Government employees and pensions.

With the real rising costs of energy, food and rent, the 1980 CPI is +8% and falling from15% in 1980 and 13% in 2008.

With 30.5 defacto unemployment, the Real Misery Index of 0bomba left Jimmy Carter in the dust some time ago.

http://research.stlouisfed.org/fred2/series/MULT

http://www.shadowstats.com/alternate_data/inflation-charts

http://chilaborarts.wordpress.com/2010/09/12/real-unemployment-30-5-what…

Login or register to post comments by UninterestedObserver
on Tue, 10/12/2010 – 13:48
#643859

So Bruce is Leo? Leo who?

Login or register to post comments by cbxer55
on Tue, 10/12/2010 – 10:32
#643242

When did Leo come into this picture?

He has not posted on it as of yet.

Login or register to post comments by Cpl Hicks
on Tue, 10/12/2010 – 11:06
#643341

Ponzi just knew he was thinking about it.

Login or register to post comments by New Revolution
on Tue, 10/12/2010 – 08:50
#642930

The New Revolution is coming….

Login or register to post comments by 99er
on Tue, 10/12/2010 – 08:53
#642932

US Government: “Who cudda known.”

Chart: ES and ZB

http://99ercharts.blogspot.com/2010/10/es-zb_12.html

Login or register to post comments by Perseid.Rocks
on Tue, 10/12/2010 – 08:54
#642939

So they think food is getting cheaper ? What you talkin ’bout willis..

Login or register to post comments by Fish Gone Bad
on Tue, 10/12/2010 – 09:37
#643062

Actually it has, at least for the cheap markets I shop.  I make it a point to read the Mexican markets flyers, Superior markets, and Stater Brothers.  Surprisingly, the 99cents only stores are not the great bargains they were up until a year or two ago.

I was over at Winco last week and saw lobster tails for $8.99 each.  That market is real “low rent” and to see lobster there was amazing.  The Fiesta chain was sold to El Super, and El Super appears to be cleaning out all the “old merchandise”, so things are being sold for dirt cheap.  Cans of abalone for $2.99, BIG cans of coffee for $1.99, Tide 50oz 2X for $3.99.  Cases of water for $1.99 +CRV.

So prices have indeed plunged (at least where I shop).

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 09:46
#643084

you must not shop in the grains markets.  corn, wheat, soy, oats – through the roof!  coming to your local store soon!!!

Login or register to post comments by Clark_Griswold …
on Tue, 10/12/2010 – 10:33
#643249

Chopper,

got any good tickers to look at on those….?

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 12:26
#643596

i’m in the futures market, Clark.  …not sure what the ETF equivalent is.   

Login or register to post comments by Clark_Griswold …
on Tue, 10/12/2010 – 12:34
#643618

Thanks Chopper,

unfortunately I don’t dabble in futures, and probably should have gotten myself a bit edumacated on it….lol.

Login or register to post comments by ATG
on Tue, 10/12/2010 – 10:41
#643278

Commodity prices a fraction of brand name processed food product prices.

http://www.foodtimeline.org/foodfaq5.html#kelloggs

 

Login or register to post comments by Rainman
on Tue, 10/12/2010 – 10:28
#643233

Southern California is bloated with grocery store chains. I’ve noticed signifigant markdowns over the past two years and the competition is fierce. One area of markdowns I noticed was the wine selections ( yes, you can buy booze in virtually all supermarkets and drug stores ). Mid shelf wines, typically selling at 12 bucks are marked to $ 7.50 at a high-end Ralphs. Milk seems to be the one item that is steadily creeping up, though.

If inflation is coming to the food aisles, I haven’t seen it yet around this neck of the woods…just the opposite.

Login or register to post comments by still kicking
on Tue, 10/12/2010 – 10:50
#643298

You guys are not seeing the big picture, stuff you don’t need is cheaper, lobster tails, wine, higher end clothing etc, that’s because those things had huge markups and can come down and will because no one is buying them at the old prices.  Go look at milk, bread, eggs, flour, any kind of basic meat, it’s all creeping up in price and you will buy it because you have to.

Login or register to post comments by Shameful
on Tue, 10/12/2010 – 12:05
#643538

So is the answer a booze based diet?  Supersize Me, with Whisky!  http://www.youtube.com/watch?v=ssf7088paXA

Login or register to post comments by still kicking
on Tue, 10/12/2010 – 12:36
#643624

I like the way you think!

Login or register to post comments by Kobe Beef
on Tue, 10/12/2010 – 13:51
#643868

I propose Bourbon is a better use of corn than ethanol. Agreed?

Login or register to post comments by blindfaith
on Tue, 10/12/2010 – 08:57
#642949

you are absolutely right.  I am about to go on Social Security…why?  My real estate taxes just went up to pay the salary INCREASES for the public sector workers (that’s a laugh).  My business is so bad that the ONLY way I can pay my real estate taxes is to go on and take the SS now, and SPEND ALL of it ( the SS check) on my tax bill to pay “workers” who are not spending money to buy my goods.   Lets hope these “workers” are spending that money somewhere to help run the economy.

Login or register to post comments by Dr. No
on Tue, 10/12/2010 – 09:05
#642974

I think that is good. Real gov cost cutting. Everyone on this board wishes the gov taxed less and spent less. Looks like they are spending less.

Login or register to post comments by razorthin
on Tue, 10/12/2010 – 09:11
#642986

Oh sure – to what end?  To justify another huge round of wealth transfer.  Let granny have her hot meal.

Login or register to post comments by Bob
on Tue, 10/12/2010 – 09:18
#643003

The 60% of SSI recipients who have no other source of income are “entitlement” parasites. 

Meanwhile, Wall Street bonuses coming for this year:

http://online.wsj.com/article_email/SB1000142405274870451810457554654246…

THIS IS 8% OF M1!!

Login or register to post comments by razorthin
on Tue, 10/12/2010 – 09:24
#643020

I don’t disagree, Bob.  My point is that in the context of the current entitlement reality, the orcs are scamming the poor with petty theft while they move on to the grand larceny of further fiat debasement.  Most of us here know that the overarching truth is that a government that maintains its balancesheet and the integrity of its currency obviates the need for social justice (e.g., SS and the like).

Login or register to post comments by Bob
on Tue, 10/12/2010 – 09:44
#643076

I expected my sarcasm to come through loud and clear.  I heard ya, razorthin! 8)

Login or register to post comments by espirit
on Tue, 10/12/2010 – 10:05
#643150

“I expected my sarcasm to come through loud and clear”.

Maybe not “Bob”. As Tyler has suggested, why not utilize the function?

Some people take your crap seriously.

Login or register to post comments by Bob
on Tue, 10/12/2010 – 10:07
#643163

Thanks for feedback, point taken.

Login or register to post comments by Montgomery Burns
on Tue, 10/12/2010 – 11:02
#643328

 I got it, and i’m kind of slow.

Login or register to post comments by Dr. No
on Tue, 10/12/2010 – 09:18
#643007

Someone junked me.  What a poser.  I think the zero COLA is a step in the inevitable direction.  So people didnt get a COLA adjustment this year and last…. Guess what?  people will be getting a CUT in the comming years.  Have you not seen the SS balance sheet?  If you calculator is like mine, there are not enough digits to show how deep in the red SS and medicare are.  No COLA… Should be happy they are getting something.  I’m a generatation X.  I will be getting ZERO.  How does that fit into your COLA?

Login or register to post comments by Printfaster
on Tue, 10/12/2010 – 09:26
#643023

Things are not quite that way.

Assume that granny could have taken out her social security in gold instead of government promises to pay in some lock box.

Well, granny got her gold stolen from her so that you would not have to pay her anything, in terms of gold that is.  Average social security payment is about one ounce of gold per month.  Granny probably “bought” thousands of ounces at $35 to $45/ounce, none of which she will ever see.

The magic of government.  Poverty for all.

 

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 09:50
#643096

we need MORE BIG GOVERNMENT to oversee this Big Government. 

Login or register to post comments by Cpl Hicks
on Tue, 10/12/2010 – 11:15
#643368

You misunderstand how SS works. Granny never bought anything. Her wages were taxed and she got a promise of something called a future benefit. She never owned a thing; no monthly statement, no claims to any asset whatsoever.

Login or register to post comments by UninterestedObserver
on Tue, 10/12/2010 – 13:52
#643875

LOL why was that comment junked?

They don’t call it Social Security TAX for a reason

Login or register to post comments by Dr. No
on Tue, 10/12/2010 – 13:59
#643897

There is a junker trolling these boards who lives in dream land.

Login or register to post comments by Internet Tough Guy
on Tue, 10/12/2010 – 09:27
#643028

I’m with you. Also, if seniors start starving maybe they will question why government doesn’t accurately report inflation numbers. Maybe they will question all the other shady scams perpetrated by the Fed and gov. Maybe.

Login or register to post comments by Bob
on Tue, 10/12/2010 – 09:47
#643087

I wouldn’t want them to starve–I think traditional prison food would be just fine.  Bread and water. 

Login or register to post comments by espirit
on Tue, 10/12/2010 – 10:07
#643164

I junked you “Bob”.

Login or register to post comments by Bob
on Tue, 10/12/2010 – 10:17
#643190

Thank you!  I woulda done the same without comment. 

MISFIRED ON MY REPLY ABOVE!

Reading too quickly . . . thought the proposition I was responding to was the gov/banksters starving!

Jeese. Take a break, Bob.

When I saw my error, for some reason the system would not allow me to edit it.  

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 10:17
#643201

face it, Bob.  you hate little old ladies. 

Login or register to post comments by cbxer55
on Tue, 10/12/2010 – 10:36
#643260

On this site, once someone replies to your post, it becomes uneditable. 😦

Login or register to post comments by still kicking
on Tue, 10/12/2010 – 10:59
#643320

I have to give you some grief on your response here, if we are talking about the banksters then I would be willing to feed them dog piss and dirt, and save the bread and water for decent folks, but that’s just me.

Login or register to post comments by UninterestedObserver
on Tue, 10/12/2010 – 13:54
#643881

Or we can just feed the bankers to the old people…soylent green – “it’s bankers!”

Login or register to post comments by Bagbalm
on Tue, 10/12/2010 – 12:30
#643607

I’m old and on Social Security. But I’m not feeble and helpless. When it goes total Mad Max and gets down to bread and water I have a rifle and will be looking foreward to slow roasted Bob BBQ.

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 09:52
#643109

folks respond to pain. now they’ve got some.

Login or register to post comments by Bob
on Tue, 10/12/2010 – 10:12
#643182

MISFIRED ON MY REPLY ABOVE!

Reading too quickly . . . thought the proposition I was responding to was the gov/banksters starving!

Jeese. Take a break, Bob.

Login or register to post comments by still kicking
on Tue, 10/12/2010 – 11:01
#643326

You and I at least have the benefit of seeing the truth well enough in advance to prepare, the old timers don’t.  They were sold a lie I don’t think we should blame them for not knowing any better.

Login or register to post comments by virgilcaine
on Tue, 10/12/2010 – 09:17
#642992

Can’t wait for this mkt to tank already.  There’s a lot of air in that bubble.

Login or register to post comments by razorthin
on Tue, 10/12/2010 – 10:31
#643241

this stuck pig ain’t dyin

Login or register to post comments by Internet Tough Guy
on Tue, 10/12/2010 – 09:29
#643035

Didn’t they kick the seniors a one-time payment last year? Congress is good for that.

Login or register to post comments by Captain Willard
on Tue, 10/12/2010 – 10:06
#643158

I think it was $250 “one-timer” for the “donut hole” in the prescription drug plan.

But the Lord giveth, and he hath taken away…..

It’s all smoke and mirrors anyway. Our incomes haven’t increased in 10 years and private sector employment hasn’t grown in 10 years, but nominal and real GDP supposedly have grown.

It’s all Newspeak.

Login or register to post comments by Milestones
on Tue, 10/12/2010 – 09:50
#643100

You will note of course that federal employees, specifically our Congressmen, get automatic increses in pay-inflation or no.

Get used to smaller rations of more expensive cat food.

Is’s wonderful-marvelous, that you should care for me!! Not exactly what Cole Porter had in mind.    Milestones

Login or register to post comments by UninterestedObserver
on Tue, 10/12/2010 – 13:56
#643889

Yeah I loved reading that the average postal worker makes $83000 per year – WTF !!!!!

Login or register to post comments by Edmon Plume
on Tue, 10/12/2010 – 10:10
#643178

Ya’ know, the Bamster said we’d have to tighten our belts.  You’ll just have to adjust your portion size of wagyu beef, errr, I mean cube steak.

Login or register to post comments by Cpl Hicks
on Tue, 10/12/2010 – 11:20
#643381

Cube steak?

The starving masses will be lucky to get beans and weenies.

YOU’LL GET NOTHING AND LIKE IT!!!

Login or register to post comments by SteveNYC
on Tue, 10/12/2010 – 10:13
#643191

Bernanke’s lowest and most vile act, even more vile than debasement of the currency to date, is ROBBING interest payments from the elderly and from savers to give to the banks.

Old people who put a few bucks together and were drawing interest to keep them going in retirement are being fucked over so badly, I’m shocked they haven’t gone ballistic on Ben’s ass.

This is a fuckin travesty that the actual “capital” of our country can be harvested to feed pig bankers. Ben needs to go, bad.

Login or register to post comments by chopper read
on Tue, 10/12/2010 – 10:18
#643203

fiat money, fractional reserve lending, central money planning?  what could go wrong?

Login or register to post comments by covert
on Tue, 10/12/2010 – 10:17
#643202

what deflation? price of tobacco and accessories has increased by about 33%!.

http://covert2.wordpress.com

 

Login or register to post comments by still kicking
on Tue, 10/12/2010 – 10:55
#643312

I attended a luncheon hosted by ex deputy director of Human Health Services, Ben Sasse, last month.  He claimed that the only way to keep SS and Medicare afloat after 2014 was to either raise taxes to about triple where they are now or raise the qualifying age to 82.  Tell me how we aren’t f#cked.

Login or register to post comments by tom
on Tue, 10/12/2010 – 11:13
#643329

Sorry to retirees, but at this point any kind of austerity is good news. Eliminating SS Colas is of course way too puny to stop the 10% deficits train from crashing into the wall of default within a few years. But if there were a lot more being done like this, the good old US of A might just have a fighting chance.

The retiring boomer bulge is coming much faster than markets are anticipating. The result is a deficit that won’t go down despite the tapering off of stimulus.

Login or register to post comments by gman1253
on Tue, 10/12/2010 – 11:40
#643452

Actually SS is not in as bad a shape as it’s made out to be …IF… they would not take the taxes coming in for  SS & use them for other things.

Login or register to post comments by HungrySeagull
on Tue, 10/12/2010 – 12:36
#643613

All of the check is spent. Electric bill, water bill, food, gas, and whatever else these Seniors have to deal with.

The stuff you dont need has crashed in pricing because no one is buying and the stuff you need like milk, eggs and cereals etc are rising steadly.

On one side I am feasting on the things that were previously too expensive just a few years ago and on the other I see people counting every penny in the walmart. And there are the ones that have carts filled with chips and dip towing 5 kids with 6 dozen little juice bottles through the cigerette check out line. And everyone of the family is already overweight.

I will say something else though.

About 2 in 5 shoppers who buy food in the grocery store near me (Who cannot afford the gas or a car to get to the big walmart a dozen miles away) have a WIC card or check which requires a wait until the supervisor can swipe his own card and approve the transaction. Everyone waits.

It is getting faster to go to walmart, buy a whole load drive home than it is to go to the local store for a bit of milk or something else.

 

If Bennie rolls over in bed and passes gas or marble in the form of dollars in his bloated fantasy vault filled with imaginary money… imagine the boost that can be given to those on Social Security without the Nation feeling it in the pocketbook.

Gone are the days where we had maniac wedensdays at the local post office or bank because of social security checks. Now we have midnight gatherings at the walmart or utilities running about the neighborhood frantically metering the numbers to quickly runt he bills for next month auto draft.

Login or register to post comments by minus dog
on Tue, 10/12/2010 – 13:28
#643765

The price of nearly all staple items is going through the roof, and sales/coupons have dropped off dramatically.  More than a few basic items have doubled or tripled in the last 2 years.  Shortages in some item or other are not uncommon.  I’ve seen this from one end of the country to the other.   

I don’t give a flying fuck about the price of steak or lobster, and I’m quite convinced from some of the posts I see on here that some ZH commenters really have no understanding of what prices are doing for the little guy.

We will have COLA games, and probably outright cuts in the future.  Neither will keep SS from failing.

Login or register to post comments by walküre
on Tue, 10/12/2010 – 14:01
#643900

This is bad for Vegas and stocks.

Less SS money for the casinos in NV and on Wall Street.

Now if the AARP membership fees go up.. double whammy!

Also, short Pfizer. LOL

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