IN THIS ISSUE:
1. Key Fed Policy Meeting Today & Tomorrow
2. No More Early Social Security at Age 62?
3.A Long (But Incomplete) List of Obama’s Scandals
4. Obama: The Buck Doesn’t Stop Here
The Fed Open Market Committee is meeting today and tomorrow to set monetary policy going forward. The big question is whether or not the Fed will decide to “taper” its monthly purchases of $85 billion in Treasury bonds and mortgage securities, which have driven stocks and bonds higher over the last few years. The decision depends largely on the Fed’s view of the economy, so they tell us.
No one knows for sure which way the Fed will go, but either way it will have a big impact on the markets. Both stocks and bonds have moved lower ahead of the meeting, and I expect a big move one way or the other depending on tomorrow’s announcement of the Fed’s decision on quantitative easing (“QE”).
Following that discussion, we’ll look at the annual report from the Social Security Trustees. As usual, the Trustees warn that Social Security is going broke – what else is new? But there is a growing movement to raise the early retirement age from 62 to 64. Will it happen? I doubt it.
Finally, I will update you on the growing list of Obama scandals and how the buck never seems to stop with the president. The result is that fewer and fewer Americans trust our government.
Key Fed Policy Meeting Today & Tomorrow
The Fed Open Market Committee (FOMC) is meeting today and tomorrow to set monetary policy for the next six weeks or so. Ever since the March FOMC meeting when the Fed warned that it might start “tapering” (the Fed’s word for it) its $85 billion a month in QE bond and mortgage purchases, the stock and bond markets have been nervous.
Bond yields have risen back to the top end of the recent trading range, with the 30-year Treasury bond around 3.3%. Bond traders worry that if the Fed slows or stops its bond purchases, yields could go even higher, forcing bond prices lower. I agree.
Stocks have rallied to a new high since March, but have trended lower in recent weeks, as today’s FOMC meeting drew closer. Virtually everyone agrees that the Fed’s massive QE purchases have pushed stocks significantly higher. What if they are tapered or stopped?
Chairman Bernanke and other Fed officials have commented openly in recent weeks that they might begin scaling back QE purchases if the economic data look encouraging. Other than a nice jump in consumer confidence last month and some better news in the housing sector, the economy continues to limp along overall. That doesn’t argue for tapering by the Fed.
The FOMC has stated that it would look to end QE purchases if the unemployment rate falls to 6.5%. In May, it went the other direction, rising from 7.5% in April to 7.6%. That also doesn’t argue for the Fed slowing purchases.
In addition to the much-awaited policy statement tomorrow afternoon, Bernanke will hold a press conference after the meeting, and the markets will be hanging on his every word. And I’m not talking about just the US stock and bond markets. Markets around the world will be listening intently as well. Whatever the outcome tomorrow – tapering or no tapering – this will be a big event!
My guess is that the Fed will wait to taper at least until the September 17-18 FOMC meeting when Bernanke is next scheduled to hold a press conference afterward. There is a meeting on July 18-19 but Bernanke is not scheduled to speak after that one.
No More Early Social Security at Age 62?
The Social Security Board of Trustees released its annual report on May 31 summarizing the financial health of both the retirement and the disability trust funds.
The report projected that the retirement trust fund will be depleted in 2033 – unchanged from last year’s projection. It said that unless Congress acts, at that point the program will be able to pay only 77% of promised benefits from ongoing contributions. The disability trust fund will be depleted much sooner – in 2016 – when the program will be able to pay only 80% of promised benefits from ongoing contributions.
Other statistics from the report that you might find interesting include:
- More than 57 million people were receiving Social Security by the end of 2012.
- In 2012, approximately 161 million people paid payroll taxes on earnings covered by Social Security.
- The total money held in reserve by the program rose by $54 billion in 2012 to $2.73 trillion.
- The cost to administer the program in 2012 was 0.8 percent of total expenditures, a total of $6.3 billion.
A few days prior to this announcement, Donald Fuerst, Senior Pension Fellow at the American Academy of Actuaries, testified before Congress about Social Security’s pending shortfalls. He said that in 1940, when the new Social Security Administration began paying monthly retired worker benefits, the retirement age was 65. At that time, workers who survived to age 65 had a remaining life expectancy of 12.7 years for men and 14.7 years for women. By 2011, life expectancy at age 65 was 18.7 years for men and 20.7 years for women, an increase of six full years for both.
In 20 more years, life expectancy at age 65 is expected to be more than 20 years for men and more than 22 years for women, Fuerst pointed out. The bottom line: If something doesn’t change, we won't have enough money to pay all the Social Security that is promised, a retirement planning disaster.
Fuerst offered Congress several suggestions for fixing this problem. His most controversial idea is raising the minimum age for collecting Social Security from 62 to at least 64.
Here’s what he suggested to make an increase in retirement ages less painful for workers:
1. Gradually phase in any change over an extended period of years, even decades, to allow for more time for society to adapt to the new reality. “Give people time to plan and prepare. You wouldn't want to change it for someone who was planning to retire the next year. None of us would consider that fair,” Fuerst says.
2. Reduce benefits for higher-paid workers. “Wealthier socioeconomic groups recently show more longevity improvements than poorer groups,” Fuerst points out.
3. Revise the Social Security disability program. Make requirements more lenient for people between ages 62 and full retirement age, so those in occupations that involve physical labor wouldn't have to continue to work at jobs they couldn’t physically do.
4. Cut or eliminate the wage tax for both employers and employees for people between ages 62 and full retirement age. It would give an incentive to both groups to keep older workers on the job.
Will a plan this complex and drastic ever make its way through Congress? Fuerst thinks it should, but he isn’t optimistic. “It isn’t going to be easy; there are too many competing interests,” he says. Add to that the fact that there is only a handful of lawmakers that would dare propose this change, much less actually vote for it.
A Long (But Incomplete) List of Obama’s Scandals
The list of scandals coming out of the Obama administration just keeps piling up, and public trust in the government is falling rapidly, and for good reason. Let’s see why. What follows is a list of the known scandals we’ve learned about this year.
Under President Obama, we have seen an Internal Revenue Service harass conservative, Jewish, and Christian groups and withhold nonprofit status from conservative groups. We have seen the Department of Homeland Security label Tea Party activists, evangelicals, and veterans returning from abroad as “threats.”
We have seen the Environmental Protection Agency show favoritism to liberal groups and obstruct conservative groups. Just last week we learned that the EPA leaked private information – including names, personal addresses, phone numbers and even e-mail addresses – on some 80,000 farmers and ranchers to left-wing activist groups.
We have seen the Department of Justice sell arms to Mexican drug cartels (Operation Fast & Furious), turn a blind eye to the New Black Panthers intimidating voters at polling places, and target journalists as potential criminals for doing their jobs. We have seen the State Department bungle its handling of Benghazi and engage in a cover-up of the details showing just how badly they screwed up.
Just recently we’ve learned of HHS Secretary Kathleen Sebelius’shakedownof insurance and healthcare companies she regulates for “donations” to pay for ObamaCare implementation – that Congress has refused to fund. This is just one more unethical and potentially illegal development in the quest to implement ObamaCare.
And the latest is the NSA surveillance scandal (even though technically legal) which has the government hoovering-up billions of phone records each day and millions of e-mails from virtually all private citizens. Many Americans are outraged. Comedian Jay Leno mused:
“How ironic is that?We wanted a president that listens to all Americans -- now we have one!”
For more details on this NSA scandal, read myBLOGfrom last Thursday.
And the list of “power grab” actions noted above isfar from complete. The stories above are just the ones we know about. I suspect there will be others to follow, especially since we learned last week that numerous members of Obama’s Cabinet have secret e-mail accounts. Maybe Congress should investigate.
Obama: The Buck Doesn’t Stop Here
Ever since taking office, the president has made sure that the buck does not stop with him. It’s always the people below him. That way, he can say: I knew nothing about this until now, and I’ll get to the bottom of it and fix it. Sadly, most voters do not know that this is by design.
Even worse, he routinely promotes, praises, or otherwise gives a pass to those who have screwed up, abused the rights of American citizens and squandered American tax dollars. The promotion of Susan Rice to be his National Security Adviser in the White House is a blatant example.
Ms. Rice, as you may recall, was the UN Ambassador who went on the Sunday talk shows last September claiming that the Benghazi attack was the result of a protest over an anti-Islam movie – when everyone else knew it was a terrorist attack. Her payoff: Now she gets to work in the White House, just steps from the Oval Office and brief the president on security matters.
Some believe that the reason Obama picked Ms. Rice for the job was so that Congress cannot make her testify on Benghazi. The president can simply invoke “executive privilege” and she does not have to testify. How convenient!
If not the President directly, his administration has abused the trust of the American people. His job approval rating is plunging. ACNN/Opinion Research pollpublished Monday shows Obama’s approval rating dropping from 53% a month ago to 45%. Meanwhile, his disapproval rate rose nine points to 54% – just shy of an all-time high for his presidency.
Even more surprising, the overall decline in his approval rating was partially fueled by a plunge in support from younger Americans, a huge base of Obama’s support. Last month, nearly two-thirds of those in the 18-29 age group gave the president a thumbs up. His approval rating among that bracket plunged 17 points in Monday’s poll and now stands at 48%, a new low.
As with anNBC News/Wall Street Journal pollearlier this month, the CNN poll shows Obama is particularly losing ground on the issues of trust and honesty. While 58% of respondents in May told CNN the president was honest and trustworthy, that number has now dropped to 49%.
Similarly, the president’s marks on fighting terrorism have taken a hit. While 65% approved of his handling of terrorism in January, that number is now down to only 52%. The drop could reflect concern over the Boston Marathon bombings, which happened after the last poll was conducted.
Yet Mr. Obama has been telling the American public not to worry. The War on Terror is over, he has said. Terror incidents like the Ft. Hood massacre have been classified as “workplace violence.” Terrorism is now referred to as “man-made disaster” in Washington.
The rhetoric of this administration for the last several years has routinely downplayed threats, trumpeted the lack of attacks, and suggested that the dark clouds of terrorism have blown by – again that is, until the Boston marathon bombing. The government’s massive NSA surveillance programs, and even a warning from the Russians, did not prevent that deadly terrorist attack.
Is the NSA surveillance program working as intended and, if so, how does it really work? No doubt it has compromised the privacy of all Americans, but to what end? The director of the National Security Agency – General Keith B. Alexander – told Congress last Wednesday that “dozens” of terrorism threats had been thwarted by the agency’s huge database of nearly every domestic phone call and e-mail made by Americans.
However, General Alexander cautioned that such information is classified, and therefore he could not share any details or success stories. So we’re supposed to take him at his word? That’s just not good enough in my book!
Why should we trust the National Security Agency? How can we be sure that this super-secret government agency is not engaging in an abuse of data, especially in light of the recent IRS scandal? How can we be sure the NSA will not leak the private details of American citizens to political activist groups as the EPA did? We can’t!
With the government expanding its reach into the lives of every American with the implementation of Obamacare, how can we be sure that data which suggests someone may have a medical problem is not flagged, leaked, or otherwise abused? For now that’s a reach. But a year ago most Americans thought it was a reach to claim the IRS was willfully and maliciously targeting conservative nonprofit groups.
More and more Americans are concluding that we cannot trust the government. This administration has lost the respect of a wide swath of the American people. Compounding the problem, the Congress, which has been overseeing the NSA program, has neither the trust nor respect of the American people. When senators Diane Feinstein and Saxby Chambliss tell the American people to trust them, that should be a big red flag that we should NOT trust them.
The coming year will see Republicans and Democrats alike fight over this issue. Rand Paul will make it a campaign issue for his presidential race. How to balance national security and privacy is no easy thing – we can all agree on that. But the fact is, we would not be in such a troubling spot at this time had the Obama administration not let its own bureaucrats misbehave so badly.
Even those who might err on the side of security over privacy must now concede it is time to consider recalibrating the balance. The constitutional rights of American citizens must be protected at all cost.
Finally, as noted above, 45% of those polled by CNN still approve of President Obama. However, an even better metric of how Americans really feel is the “Direction of the Country” poll. According to the latestRealClearPolitics.comaverage, only 30.8% of Americans feel we’re on the right track, and almost 60% believe we are on thewrong track.
Notice in the graphic above how the trend is increasingly going against President Obama. No doubt the scandals have had an effect, and not a good one. I’ll leave it there.
Wishing you a great summer,
Gary D. Halbert
© Halbert Wealth Management