Thursday, June 01, 2017

Why Gen X Just Might See a Social Security Check

And a non-hyper-inflated-away one at that!

Because, yes, while the United States' economic fundamentals have been doing nothing but deteriorating over our entire lives

And yes, nobody in their right mind would lend money to an individual with the US government's finances

There are three main reasons that I am increasingly optimistic that we Gen Xer's will receive social security AND those checks will still have purchasing power.

However, we first need to understand what threatens social security.  It's not that the US government will be unable to print SS checks off and the worthless pieces of paper to finance them thereafter.  That has never been called into question.  It's whether those pieces of paper will have any purchasing power left to them.  The federal government's debt now hovers around 105% GDP, we run deficits and not surpluses, and to finance all this the federal government, since Obama alone, has doubled the M2 money supply and tripled the M1 money supply..  Normally, these hallmark traits of insolvency would render a traditional borrower's currency worthless.  Lenders would stop extending credit, and the entity would go bankrupt.  But the US is not a traditional borrower, nor is this a traditional lending market.  And it is here there are three reasons I predict Gen X will get as social security check...and should be incredibly grateful for it!

One, the US is the world's reserve currency.

Without boring you with an incredibly dull lesson in international economics, the world has always needed a "world reserve currency." The reason why is such a thing is very useful and therefore in demand.  First, countries that want to conduct international trade may not trust each other's government to inflate away their currency.  So they write their contracts and settle their accounts in a currency that is stable and everybody has faith in.  In the olden days this was the Roman "denarius," in not so olden days it was the British Sterling, and after WWII (when there was no functional economy left in the world) it was - and remains today- the US dollar.  Second, there is also international demand for a safe haven currency, especially amongst unstable 2nd and 3rd world economies.  Even to this day, entire economies can become "dollarized" wherein there is ultimately no faith in the local currency, but there is faith in the US dollar.  These forces, and more, result in a HUGE global demand for the US dollar that goes beyond what domestic demand we have here for the consumption of goods and services.  And it also allows for the seemingly magical trick where we can triple our money supply, but see little-to-no inflation here at home. The short answer is, all those extra dollars were sopped up by countries in even worse shape than us.

Two, this then puts the onus on the US maintaining its world reserve currency status to ensure our future social security checks have value.  And there are two reasons I believe the US dollar as the world reserve currency is here to stay (or at least as long as I need it to be before I die).  First, a lot of the dollar's reserve status is due to hold-over habit.  After WWII the dollar was the OBVIOUS reserve currency, even though it's fundamentals no longer warrant it now.  But the world is dumb.  Most people don't look up debt to GDP ratios, current account deficits, nor GDP growth.  They've grown up their entire lives eating, sleeping, and breathing "the dollar is stable and has value."  So you can have a financial home-wrecker like Obama come in, print off all the money in the world, and the reputation our forefathers and WWII vets gave the US will still hold in the eyes of the world's sheeple.  The second reason is a bit more concrete.  The US is about the only country today that could be the world's reserve currency because of its size.  For example there are scores of currencies whose countries' underlying fundamentals are vastly superior to the US.  Switzerland's Franc.  Norway's Krone.  Even Mexico's Peso (it's true!  look up Mexico's finances!).  But these countries' economies are puny compared to the US.  Ergo, Switzerland could print off trillions in Francs in an attempt to make it the world's reserve currency, but it would become rapidly apparently the Swiss could not produce the GDP to honor all those newly minted Francs.  The US, however, accounts for about 30% of the world's GDP and is a deep enough reserve of economic production that it can provide at least some modicum of value to the dollars it prints if the world so decided to repatriate those dollars and buy US goods with them.  This then leads to the third reason Gen X might see a social security check, which we can highlight through China.

Three, China.  More specifically, corruption.

Many people will rush to point out that China, with it's $11 trillion economy, most of which is producing PHYSICAL TANGIBLE ITEMS (not services like the US) is a better candidate for the world's reserve currency than the US.  It has less debt, much higher economic growth, and on paper is a superior candidate for the world's reserve currency.  There was even talk about a "BRIC country" cartel (consisting of Brazil, Russia, India and China) issuing their own currency to dethrone the US dollar as the world's reserve currency as these economies actually have more legitimate production of valuable stuff compared to the US.  But there is a problem with all of these potential rivals to the US, and that is corruption.

According to The Corruption Perceptions Index, the US has a score (out of 100) of 74.  This is not perfect like the squeaky clean, goodie two shoes, ass-kissing, teacher's pets of Canadians, New Zealanders, and Scandinavians, but it's CERTAINLY and DRASTICALLY better than any near-candidate competitor for the world's reserve currency:

Russia is HORRENDOUSLY corrupt with a corrupt score of 29.  While China, India and Brazil all score 40, putting them on par with Jamaica, Mexico, and Turkey.

This strikes at the heart of being a world reserve currency because it's all about trust.  It's all about faith.  And if you are so corrupt that you don't know if the Russian mafia is going to force you into an insurance arrangement, or the Chinese government may revoke your license at anytime, or the Turkish government may declare you an infidel and imprison you, then what value does your currency have?  Ergo, the purchasing power of Gen Xer's future social security checks does not so much depend on the US' sucky economic fundamentals, as much as it depends on the rest of the world just plain sucking.  And given the entrenchment of communism in China, corruption in Russia, and socialism in Brazil, there's not going to be any viable contenders against an albeit imperfect Western nation that accounts for 30% global GDP.

So cautiously rejoice my fellow Gen Xer's.  The curse we thought the baby boomers saddled us with - paying for their social security - may skip a generation, landing squarely on a generation that could not deserve it more.  The millennials will not only pay for the baby boomers' social security, but ours as well.  And I don't know what's better.  That we might actually get to see a social security check.  Or that it will be the entitled, whiny, leftist millennials who pay for it.

Enjoy the decline and remember to save for retirement!
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13 comments:

Mark Matis said...

I wonder how much of that Russian score on the "Corruption Perceptions Index" is real, and how much is manufactured by the oligarchs longing for One World Goverment, as well as our own finest in the CIA and NSA? President Putin is no angel, but he towers head and shoulders over the Democrat and Rove Republican "leaders" in this country, and has had to battle Soros' bucks and the Koch brothers bucks and every oligarch in Russia left over from the Soviet Union. It does not take much for a lie to be planted in the Media these days...

All Day Coffee break said...

Just saw this and thought you would love the blood pressure spike inducing stupidity. I and I would love a heartless vivisection of it.

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alldaycoffeebreak said...

Just saw this and thought you would love the blood pressure spike inducing stupidity. I and I would love a heartless vivisection of it.

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Glen Filthie said...

".... This is not perfect like the squeaky clean, goodie two shoes, ass-kissing, teacher's pets of Canadians, New Zealanders, and Scandinavians, but it's CERTAINLY and DRASTICALLY better than any near-candidate competitor for the world's reserve currency..."

HACKAFF! KAFF! COUGH, COUGH COUGH!!! Hork! Spit!

Errr... Canada, Captain? Are you referring to us guys up north? No corruption here? Ahem - you are aware of the piece of human sewage we have for a swine minister, right? The fwench kid with the hair? His father was a closet homo, his mother was a bipolar whore? That guy? NOT corrupt?

In Turdo La Doo's case, I suppose it MIGHT be incompetence. But as for the rest of the gobshits on his team? Oh yeah - those cretins are as dirty as Hillary or Obama or any of your Yanks any day of the week...

Anonymous said...

Forget that, the ATOM policy revamp is much better :

http://atom.singularity2050.com/

Faithless Cynic said...

I am the slow kid in regard to economics but, what about a metallic world reserve currency? Iron and steel would be too bulky for the value. How about gold or silver? Hard to inflate away to nothing ( sorry Fed Pigs ), generally accepted, and good enough for the greatest country ever, the former USA before the 1929 fuckup.

CO80401 said...

The main reason we are the worlds reserve currency is because of the deal we made with Saudi Arabia after WW 2. Oil will be priced in dollars. Want oil need dollars. As normal the first trip a president takes is to meet the King. It is the only meeting a president has in private with a head of state alone without Secret Service present.

Tucanae Services said...

CO80401 said...

"The main reason we are the worlds reserve currency is because of the deal we made with Saudi Arabia after WW 2."

I disagree. The reason we were/are the reserve currency was the fact that after WWII there were only two significant economies left intact on the planet. Ours and Argentina. The rest of the world of any significance had been flattened.

Before anyone laughs at Argentina, go back in the history books. Its economy was about a third the size of the US in the 30's. It was the fastest growing country anywhere for the period. It was the richest country in south america at the time. Then they caught the socialism disease after WWII and its been downhill ever since.

Tucanae Services said...

I disagree with the article at two levels. One economic, the other political.

Political.

Oh yes you GenXers will see SS in the future. But here is some reality. The SS system is nearing insolvency. The g'ment won't let go of it there would be mass layoffs of politicians as a result. No, the pols want their lollipops. So they have two choices. a) Lower payouts. b) Raise the eligibility age to collect.

Now they won't do (a) because those sucking on the system will revolt and ask for their lollipops back. So they will do (b). They will push the age of collection to say 85. They will do so because they will announce that it takes affect in 2024 for anyone currently under the age of 20. Most won't even be aware of the rule change and by the time they do most of those lollipop merchants will have retired.

Yes you will have your SS, intact but only a small fraction will ever be able to collect on the bet.

Economic.

A reserve currency principal purpose is for one thing -- international settlement instrument. By pegging asset valuations in a single currency it makes it easier to facilitate FX exchange. True whether its other currencies or barrels of oil. The fact that the US has effective control of the SWIFT system does not hurt either.

But what would happen to the perception of the USD if there was an alternative exchange method? Its value would decline based on the perception alone. Is there such a vehicle? Yes. There is a settlement effort being spearheaded by the Chinese. It has a tough road ahead for the reason Cappy mentioned. But is there any other vehicle? Indeed there is, fact two. I of course mean BitCoin and Ripple. BitCoin is the current darling based on use and longevity. But it does have a feature that could preclude it from being used as reserve 'currency' -- finite number of coins. What about Ripple? It takes a different approach. There are no finite valuation, fact no valuation at all. Its built as a pure transaction system. The asset is part of the blockchain that is exchanged, not the intermediary like in BTC. Ripple clears an exchange in less than 5 seconds vs days for SWIFT.

The point is whether its Ripple, BTC or some other blockchain mechanism they are systems of exchange better suited to our increasingly global purchasing environment. The value of the USD as a clearing FX mechanism wanes over time.

When the US has to deal in bbl of oil like Germany currently does, watch out!

A Texan said...

"By pegging asset valuations in a single currency it makes it easier to facilitate FX exchange."

Gold and silver used to do that just fine throughout the 19th century. Even the Ayn Rand following master money creator Alan Greenspan knows it worked.

bvn said...

Eerrmm sorry, South Africa. Drowning in gold and other key minerals, and churning out tanks and aircraft...And Canada, with the world's third largest navy at the time, and one of the biggest Allied non-US aircraft industries. The big mystery to me is how Canada managed to miss really becoming an economic powerhouse on so many, many occasions... South Africa, well, the second word in the country's title..

leeholsen said...

I'll take any money that is left, although by the time I would be ready to retire; I'm not expecting any as the global defaults should have started by then and the USA will surely take that opportunity to say sorry social security recipients, you are S.O.L !

which is why I'm slowly buying rentals and paying them off. I figure we may have a housing price crash, inflation,hyper-inflation and monetary asset confiscation; but people still have to live somewhere and if I have enough people paying me for a place to live, I should be alright. taking monetary assets out from under you easy but taking real estate is messy.

Black Poison Soul said...

The corruption in NZ is more hidden, as in under-the-table $$$ "casher" transactions. Certainly the black market (as described in the book Secret Money) is alive and well here!

@Faithless Cynic - Regarding a metallic world reserve currency, they can still inflate it away. Instead of printing more of it, they devalue the struck coin by debasing it, like in ancient Rome.

So the denarius was 3.9g of silver until 64AD, when Nero dropped it to 3.3g of silver to help rebuild Rome after the great fire. By the time of Diocletian's death (305AD) the denarius was mostly copper with a thin silver coating - if any silver at all.

So yes, people can still screw up even metallic currency if they want to badly enough.