{"id":73300,"date":"2022-06-11T02:15:40","date_gmt":"2022-06-11T09:15:40","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=73300"},"modified":"2022-06-13T16:35:12","modified_gmt":"2022-06-13T23:35:12","slug":"black-coffee-11-june-2022","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id73300-black-coffee-11-june-2022.html","title":{"rendered":"Black Coffee: A Distinction Without a Difference"},"content":{"rendered":"

\"\"It’s time to sit back, relax and enjoy a little joe …<\/em><\/p>\n

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.<\/p>\n

I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …<\/p>\n

The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete government control, which meant politics in banking, or control by Wall Street, which meant banking in politics.<\/em><\/p><\/blockquote>\n

— Paul Warburg, 1930<\/strong><\/p>\n

Credits and Debits<\/strong><\/p>\n

Credit:<\/strong><\/span> Did you see this? A week after warning of a “stormy” banking environment, JP Morgan CEO Jamie Dimon has updated his assessment as “hurricane force<\/a>.” Macroeconomist Alasdair Macleod observed that, “The signal is clear: JPMorgan will contract its balance sheet, and where it<\/strong> <\/em>goes, so goes all the other global systemically important banks because when fear takes over, banks withdraw credit from the economy.” They always do. Unfortunately, as Macleod points out, whenever the banks stop lending, “a financial and banking crisis always<\/strong><\/em> follows.” Time to batten down the hatches, folks. Especially if you’re in the market for a new car.<\/p>\n

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Debit:<\/strong><\/span> Meanwhile, the latest Social Security (SS) Trustee report is calling for another crisis, warning that the program will be insolvent by 2035<\/a>. At that point, every beneficiary will face an across-the-board benefits cut of 20%. And if that’s not bad enough, the Medicare Hospital Insurance (HI) trust fund will exhaust its reserves<\/a> by 2028. That<\/strong><\/em> will require HI spending to be reduced by 10% – and then 20% in 2046. Surprised? You shouldn’t be. Fortunately, there’s some good news<\/a> too:<\/p>\n

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Debit:<\/strong><\/span> Social Security’s big flaw is it’s a “pay-as-you-go<\/a>” system that uses taxes on current workers to pay for the benefits owed to retirees. As long as demographics remain relatively stable this works just fine as a pension scheme – which is why the payroll tax that funds SS had no trouble covering the benefits. But with a rapidly increasing number of Baby Boomers now joining the growing ranks of SS beneficiaries, the demographics are no longer favorable. As a result, SS payroll taxes have been unable to cover 100% of the program’s benefit obligations since 2021, which forces SS to dip into its reserves each year to cover the deficit.<\/p>\n

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Debit:<\/strong><\/span> On a related note, Social Security recipients’ purchasing power has declined 40%<\/a> since 2000. In fact, in order to maintain the same purchasing power as there was 22 years ago, the program would have to increase benefits by $540 per month. Heh. With that mind, it makes one wonder if it even matters if the fund will be insolvent less than a decade from now. I mean, Social Security is<\/strong><\/em> fixable; and there are plenty<\/strong><\/em> of intelligent inspirational people out there who are capable of making it a more stable and viable program. It’s just that almost all of them seem to be helping others solve science problems outside<\/strong><\/em> the field of economics:<\/p>\n