Courtesy of Bill Bonner via Acting-Man
With the European Central Bank in QE mode, stocks should be catching a bid. Instead, they seem to be following commodities – down. But who knows? The situation is so crazy that only a disabled person could understand it.
Why do we say that?
Because a report released last week told us that one out of every three people on Social Security’s disability program is a mental defective. In Washington, DC, the rate of nuttiness among the disabled is even higher – 42%. No surprise there.
And just to show we’re not making this up, here’s the report from CNSNews.com:
“One in three, or 35.2%, of people getting federal disability insurance benefits have been diagnosed with a mental disorder, according to the latest data from the Social Security Administration (SSA).
Washington, DC, the seat of the federal government, ranked in the top-10 list of states where disabled beneficiaries were diagnosed with mental problems.
In 2013, the latest data from SSA show there were 10,228,364 disabled beneficiaries, up 139,625 from 2012 when there were 10,088,739 disabled beneficiaries.
Disabled beneficiaries have increased 49.7% from a decade ago in 2003 when there were 6,830,714 beneficiaries; and the number is up 14.3% from the 8,945,376 beneficiaries in 2009, the year President Obama took office.”
Who better to understand what is going on in the financial world than a crazy person? Fortunately, America’s zombies are going crazy in ever-greater numbers.
Young person preparing to understand the markets
Multiplying Zombies
Look, central banks are using money they don’t have to buy “assets” – usually government IOUs (bonds) – from banks and other financial institutions such as pension funds. In other words, liabilities of governments, at whose whistle the central banks wag their tails.
They also happen to be liabilities that governments have no intention of honoring. That is why central banks are buying them: to suppress yields (and therefore governments’ debt service costs) and to drive up inflation (thereby reducing the value of the outstanding debt). Are you following, dear reader?
European governments – as well as those in North America and Japan – are finding it increasingly difficult to keep up with their promises – especially their promises to zombies… oops… we mean old people. All over the developed world, health care and pension programs are underfunded… or completely unfunded. Economies are slowing. Citizens are aging.
Zombie populations (people who live at others’ expense – some disabled … some crazy … and some very clever people) are multiplying. And if government-debt-to-GDP tests were administered like highway Breathalyzers, they’d be way over the limit.
Negative Yields
You see, it’s the private sector that ultimately pays the bills. In France, for example, the private sector is only about 40% of the economy. The rest is government.
But the shrinking French private sector has to carry the weight of government spending… as well as government debt that is more than twice its size (90% of GDP). But here’s the really crazy thing: France’s government debt trades at the highest prices in history… so high the yields are negative after you factor in inflation.
The French 10-year sovereign bond yields all of 0.5%. Over the last five years, consumer price inflation has averaged between 1.5% and 2%. Conclusion: Either inflation is going a lot lower, and will stay there for years, or investors are going to lose money.
There is $4.6 trillion of government debt in this negative-yield category. And so along comes the central bank bidding driving yields down further! Have we ever seen anything like it? Not that we can think of. The ECB is buying assets at record prices. And to what end? To drive prices even higher!
French 2-year government bond yields have turned negative as well – click to enlarge.
Unfunded Liabilities
Back in the US, many Diary readers have written to protest. They may be on the list of Social Security recipients. But they are not zombies, they tell us. They paid into the fund for many years (as we did). They earned the money honestly. And Social Security is just a pension plan in which they were, often unwilling, participants.
So hold the “zombie” badge for someone else! Yeah. Yeah. We turn to Google. We type: “social security unfunded liabilities.” What do we find? Here’s a report from 2013, again from CNSNews.com:
“The Social Security program faces $9.6 trillion in unfunded liabilities over the next 75 years, which is up $1 trillion from last year’s projection of $8.6 trillion, according to the latest report from Social Security’s board of trustees.
The unfunded liability is the amount that has been promised in benefits to people now alive that will not be funded by the tax revenue the system is expected to take in to pay for those benefits. (The Social Security trustees calculate the unfunded liability for a period of 75 years into the future, from 2012 to 2087.)”
How can Social Security’s honest pension fund participants expect to get almost $10 trillion more than they put in? How can governments facing that kind of obligation borrow at less than the rate of inflation? How can central banks put a $1.3 trillion bid under the priciest bond market in history?
Go figure. Maybe the fruitcakes in Washington can make sense of it.
Slightly dated numbers from a Heritage Foundation report on social security deficits to come – these figures have now worsened once again …
