All Their Eggs in Janet's Basket 

John P. Hussman, Ph.D.

The financial markets are establishing an extreme that we expect investors will remember for the remainder of history, joining other memorable peers that include 1906, 1929, 1937, 1966, 1972, 2000 and 2007.

 

The failure to recognize this moment as historic is largely because investors have been urged to believe things that aren’t true, have never been true, and can be demonstrated to be untrue across a century of history.

The broad market has been in an extended distribution process for nearly a year (during which the NYSE Composite has gone nowhere) yet every marginal high or brief market burst seems infinitely important from a short-sighted perspective.

 

Like other major peaks throughout history, we expect that these minor details will be forgotten within the sheer scope of what follows. 

And like other historical extremes, the beliefs that enable them are widely embraced as common knowledge, though there is always, always, some wrinkle that makes “this time” seem different. 

That is why history only rhymes. But in its broad refrain, this time is not different.

 Let’s get my subjective narrative out of the way so we can focus on the objective evidence. My own stumble in the half-cycle since 2009 – and it was a serious one – was to insist, after a financial collapse that we had anticipated, on stress-testing our methods of classifying market return/risk profiles against Depression-era data. 

During the tech bubble, we recognized that deterioration in market internals and other risk-sensitive measures such as credit spreads is the central feature that distinguishes an overvalued market that continues to advance from an overvalued market that collapses. 

The broad behavior of market internals (what I used to call “trend uniformity”) is effectively a measure of investor risk-preferences, and increasing divergence and dispersion is a signal of emerging risk-aversion among investors.

Again, it’s not simply extreme valuation, but the fact that extreme valuation is now joined with deteriorating market internals and widening credit spreads, that drives my rather unrestrained concerns here. Despite wicked valuations, an improvement in market internals and credit spreads would convey a signal about fresh risk-seeking among investors and would substantially ease the immediacy of those concerns.

DYI Comments: High Yield (Junk Bonds) Interest rates have moved upward as compared to investment grade bonds only to the point to where one's eyebrows move upwardly.  A cause for concern but not enough pressure as yet to show a trend towards risk aversion.  

Generational Dynamics

Wall Street stocks have surged further into bubble territory as well during the last year, just like Shanghai stocks, though they have not yet taken any serious plunge like the Shanghai stock exchange. 

It's been a month since I reported that the S&P 500 Price/Earnings ratio (stock valuation index) was at an astronomically high 21.47 on May 15, indicating a huge stock market bubble. Since then it's shot up further to the ever more astronomical level of 21.73, according to the Wall Street Journal on Friday, June 19.

  

21.73 is far above the historical average of 14. Furthermore, it was 18 just a year ago, and has been increasing rapidly since then, indicating that the Wall Street stock market bubble is accelerating, just as the Shanghai stock market bubble has been accelerating during the last year. Generational Dynamics predicts that a panic will occur, and that the P/E ratio will fall to the 5-6 range or lower, which is where it was as recently as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.

DYI

The top 50 hospitals that gouge patients the most

Fifty hospitals in the United States are charging uninsured consumers more than 10 times the actual cost of patient care, according to research published Monday. 

All but one of the these facilities is owned by for-profit entities, and by far the largest number of hospitals — 20 — are in Florida. For the most part, researchers said, the hospitals with the highest markups are not in pricey neighborhoods or big cities, where the market might explain the higher prices.

How to Keep Down Sky-High Hospital Bills: Don’t Pay

A small benefits consulting firm called ELAP Services is causing commotion by suggesting an alternative: Refuse to pay. When hospitals send invoices with charges that seem to bear no relationship to their costs, the Pennsylvania firm tells its clients (generally medium-sized employers) to just say no. 

Instead, employers pay hospitals a much lower amount for their services—based on ELAP’s analysis of what is reasonable after analyzing the hospitals’ own financial filings. 

For facilities on the receiving end of ELAP’s unusual strategy, this is a disruption of business as usual, to say the least. Hospitals are unhappy but have failed to make headway against it in court. 

“It was a leap of faith,” when Huffines Auto Dealerships, which provides coverage to 300 employees and their families, signed on to the ELAP plan a few years ago, said Eric Hartter, chief financial officer for the Texas firm.

What he says now: “This is the best form of true health care reform that I’ve come across.”

Huffines first worked with ELAP on charges for an employee’s back surgery. The worker had spent three days in a Dallas hospital.  The bill was $600,000, Hartter said. 

Like many businesses, the dealership pays worker health costs directly. At the time, it was working with a claims administrator that set up a traditional, “preferred provider” network with agreed hospital discounts. 

The administrator looked at the bill and said, “‘Don’t worry. By the time we apply the discounts and everything else, it’ll be down to about $300,000,’” Hartter recalled. “I said, ‘What’s the difference? That doesn’t make me feel any better." 

Instead, he had ELAP analyze the bill. The firm estimated costs for the treatment based on the hospital’s financial reports filed with Medicare. Then it added a cushion so the hospital could make a modest profit.

“We wrote a check to the hospital for $28,900 and we never heard from them again,” Hartter said.

Normally, customers who don’t pay bills get hassled or sued. This sometimes happens to ELAP clients and their workers. Hospitals send patients huge invoices for what the employer refused to pay. They hire collection agents and threaten credit scores.

ELAP fights back with lawyers and several arguments:

How can hospitals justifiably charge employers and their workers so much more than they accept from Medicare, the government program for seniors? 

How can hospitals bill $30 for a gauze pad? 

How can employee-patients consent to prices they will never see until after they’ve been discharged?

DYI Comments:  WOW!  A billing from $600,000 then to $300,000 to a final payment of $28,900!  I wonder how many business' just rollover and accept the $600,000 payment?  A $571,100 over payment has made these hospitals into cash cows providing managements and CEO's multi-million dollar bonus'.  Don't get me wrong I'm all for the free enterprise model but this is nothing more than out right fraud.  What is needed is for the health care industry to come under anti-trust and competition laws.  When that happens prices will drop 70% to 85% only then would an individual need catastrophic health insurance at the cost of full coverage car insurance for a family of four.

How long will the American public put up with this nonsense?  Once they learn how much they are being ripped off; only then will the tide turn for true reform. Hopefully the ELAP Services company model will grow legs with other benefits services companies jumping in as well.  Don't be surprise to see these medical companies flood our politicians with bribes campaign dollars in an attempt to outlaw companies such as ELAP Services and their imitators out of existence. 

DYI

Still Paying for the Civil War

Veterans' Benefits Live On Long After Bullets Stop

WILKESBORO, N.C.—Each month, Irene Triplett collects $73.13 from the Department of Veterans Affairs, a pension payment for her father's military service—in the Civil War. 

More than 3 million men fought and 530,000 men died in the conflict between North and South. Pvt. Mose Triplett joined the rebels, deserted on the road to Gettysburg, defected to the Union and married so late in life to a woman so young that their daughter Irene is today 84 years old—and the last child of any Civil War veteran still on the VA benefits rolls. 

The last U.S. World War I veteran died in 2011. But 4,038 widows, sons and daughters get monthly VA pension or other payments. The government's annual tab for surviving family from those long-ago wars comes to $16.5 million. 

Spouses, parents and children of deceased veterans from World War II, Korea, Vietnam, Kuwait, Iraq and Afghanistan received $6.7 billion in the 2013 fiscal year that ended Sept. 30. Payments are based on financial need, any disabilities, and whether the veteran's death was tied to military service.

DYI Comments:  Fascinating article(Wall Street Journal) about this family, their history, and many old photos plus other veterans.  Chalk up another great article for the WSJ.

DYI       

The Medical Industrial Complex...The Rip Offs Continue....

The curious incident of the $44,000 prescription

When a CBS News employee was recently prescribed a nutritional supplement to boost his energy, he was astonished when he saw the claim the pharmacy submitted -- and his insurance approved -- for a one month supply: $44,707. 

For the cost of a BMW convertible, he got 180 capsules of powdered resveratrol, an antioxidant found in red grapes, available at any local nutrition store. 

In fact, two bottles of another brand of resveratrol contain roughly the same amount as the $44,000 prescription, which raises an even more puzzling question: Why does the over-the-counter resveratrol cost just $157.38? 

Last week, a CBS News producer caught up with Brian Sutton, a member of the family who owns Warner West. When the producer asked him to explain the $44,000 price tag for resveratrol, Sutton ignored the question and shut the pharmacy door behind him.

DYI Comments:  Don't think for a second that this is an isolated incident as these types of scams have become rampant.  The similarities between the defense spending and the health industry for unbridled cost overruns are the same.  Today I call the health industry "The Medical Industrial Complex." Currently all levels of the health industry are exempted from Sherman Anti-Trust Acts through bribes campaign dollars.  Every portion of the health industry is consolidating over the past 20 years at an ever increasing pace.  Add on sub atomic low rates of borrowing and mega mergers are now ramped up at light speed.  Most doctors today work for large corporation.  The idea of a sole proprietor will soon be long gone.

By the way the Warner West Pharmacy(above article) is a CVS/caremark store.  Place these companies under all of the competition and anti-trust laws prices for medical care would drop 70% to 85%.  You would only need catastrophic insurance; the cost would be similar to full coverage car insurance.

DYI

"The Last Gasp of the Bubble Era." John Hussman Ph.D Hussman Funds

June 15, 2015

When You Look Back On This Moment In History 

John P. Hussman, Ph.D.

"History teaches that the longer value-conscious investors are wrong, the more seriously their views should be taken (remember Roger Babson)." 

When you look back on this moment in history, remember that spectacular extremes in reliable valuation measures already told you how the story would end. Among the measures best correlated with actual subsequent S&P 500 total returns, capitalization-weighted market indices such as the S&P 500 were more richly valued in only 54 weeks of history, 21 of which represented the final advance to the 2000 market peak, with the remaining 33 representing the retreat from that high to present valuation levels, on the way to a 50% loss in the S&P 500 Index and an 83% loss in the Nasdaq 100 Index. Presently, the market has already lost the momentum and favorable market internals that were evident during that final run, so we doubt that the 2000 extreme should be viewed as an objective.

In a nutshell, the normal run-of-the-mill expectation for S&P 500 total returns from present valuations is zero over the coming 10 years, but in the event of a secular low in the future, total returns from current valuations may turn out to be about zero for the coming 20 years. Future generations will likely recognize the current precipice, in hindsight, as The Last Gasp of the Bubble Era.

I have little doubt that we will likely observe strong or outstanding investment opportunities even over the completion of the current cycle, because severe market losses can dramatically change this arithmetic. Presently, however, the prospects for long-term investors remain dismal. Even the 4% annual total return of the S&P 500 in the 15 years since the 2000 peak has been made possible only by driving current valuations to the second most extreme point in U.S. history.

When you look back on this moment in history, remember that dismal return/risk prospects were grounded in objective historical evidence, not simply opinion. Of course, a handful of observers are so self-satisfied with pointing out the challenges since 2009 that I’ve regularly admitted and already addressed that they confuse the message with the messenger; ignoring objective evidence as a consequence. This unfortunately dismisses the central lesson to be drawn from the awkward transition that resulted from my 2009 decision to stress-test our methods against Depression-era data, not to mention the fact that concerns similar to my present ones were rather stunningly vindicated over the completion of prior market cycles. Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995.

 

Is the bond market ‘bubble’ ready to burst? A look at risk to rising interest rates

 1. Duration is the longest in historyDuration is the most common way to measure interest rate risk. If you need a refresher, Morningstar has a great definition of duration. 

Simply put, the longer the duration, the greater the potential loss of value when interest rates rise. However, this depends on whether you are a borrower or a lender. 

Borrowers — such as corporations, municipalities and the Federal Government — have taken advantage of the current interest rate environment to issue bonds at low rates of interest and with longer maturities. 

While these lower interest rates are good for them, they’re not good for lenders such as individual investors. And as borrowers have locked in current low rates for a longer periods of time, the duration of the bond indices has increased to historic lengths. 

2. Yields are close to their lowest levels in historyThe yield on the Barclays Aggregate Bond index has steadily declined from 10 percent in March 1989 to its current yield — a paltry 2.4 percent. That’s not a lot of income cushion to offset any potential decline in the price of your bond portfolio as interest rates climb. 

Read: The Best Way to Invest in Bonds In A Rising Interest Rate Environment 

3. The yield buffer is the lowest in historyIn order to understand the impact of longer duration and low yields, let’s use a real-life example of one of the largest bond funds today and look back at its history. 

According to Morningstar, over the past 30 years, the Vanguard Total Bond fund has experienced six years when the ­principal loss­ in the portfolio was more than 2 percent. However, because the income return in each of these years was sizable, no single year resulted in a total return loss greater than 3 percent. 

For instance, in 1987 the rise in interest rates caused the price of the Vanguard Total Bond fund to plummet by a whopping -7.6 percent. Because the income return was so high at 9.2 percent, the fund still had a total return of 1.5 percent. The income was more than enough to offset the principal loss.

Worst bond crash in almost 30 years is early warning of turmoil to come

The global deflation trade is unwinding with a vengeance. Yields on 10-year Bunds blew through 1 per cent this week, spearheading a violent repricing of credit across the world’s financial system. 

The scale is starting to match the “taper tantrum” of mid-2013, when the US Federal Reserve issued its first gentle warning that quantitative easing would not last forever, and that the long-feared inflection point was nearing in the international monetary cycle. 

This is shaping up as the worst quarter for sovereign bonds in almost 30 years.The Bank of America Merrill Lynch Global Government Index is down 2.9 per cent since the end of March. If it holds, it’ll be the biggest quarterly loss since the third quarter of 1987. 

Paper losses over the past three months have reached $1.2 trillion. Yields have jumped by 175 basis points in Indonesia, 160 in South Africa, 150 in Turkey, 130 in Mexico and 80 in Australia. 

The epicentre is the eurozone. Bund yields hit 1.05 per cent Wednesday in wild trading, up 100 basis points since March. French, Italian and Spanish yields have moved in lockstep. 

A parallel drama is unfolding in America, where the giant bond fund Pimco slashed its holdings of US debt to 8.5 per cent of total assets in May, from 23.4 per cent a month earlier. This sort of move in the fixed income world is exceedingly rare. 

The 10-year US Treasury yield — the global benchmark price of money — has jumped 48 points to 2.47 per cent in eight trading sessions. “It is capitulation out there, and a lot of pain,” said Marc Ostwald from ADM.

It has plainly been a bond market bubble, one that is unwinding with particular ferocity because new rules have driven market-makers out of the business and caused liquidity to evaporate. Funds thought they were on to a one-way bet as the European Central Bank launched quantitative easing, buying 60 billion euros of eurozone bonds each month. They expected Bunds to vanish from the market as Berlin increased its budget surplus to 18 billion euros this year and retired debt. 

Instead they have discovered that the reflationary lift from QE overwhelms the “scarcity effect” on bonds.

How Australia’s Big 4 Banks Can Sink the Entire Economy

They’re so huge compared to Australia, they’re “Too Big To Save”

Australia’s Big 4 put the American Big 4 to shame

JP Morgan, Bank of America, Citigroup, and Wells Fargo are the four largest banks in the United States. The total assets on their balance sheets combined equaled the equivalent of 48.3% of total American GDP in 2014.

That sounds like a crazy number until you compare that to the total assets of the Big four Australian banks: ANZ, Commonwealth (CBA), National Australia Bank (NAB), and Westpac (WBC) hold relative to Australian GDP

End of the Line! China and Germany Look Ready to Pop

Consider that Germany exports 50% of its GDP. That’s one of the highest ratios in the world.

Hence, the falling euro gives it a huge advantage. But the euro has barely budged for three months…

That explains why the DAX has fallen 10% since early April, which is when I believe it reached its long-term peak. When the next great crash hits, it’s likely to take the DAX down to its early 2009 low, at least — a 72% crash likely by early 2017.

China’s bubble recently hit 5,500. It’s likely to go a bit higher, but I do not see the Shanghai Composite exceeding its 2007 all-time high of just over 6,000.

I’m expecting China to suffer an 83% crash likely by early 2017, to its 2005 lows near 1,000 — minimum!

The emergence of these late-stage bubbles while the world’s leading economies stall is the clearest sign yet that this global bubble is getting ready to burst.

Two of the Most Economically Sensitive Commodities Suggest a Crash is Coming

Chart Of The Day: Retail Sales (ex Autos) Turn Negative For First Time Since 2009

‘Underwater’ American homeowners still drowning in mortgage debt

The percentage of homes underwater — where the home is worth less than the mortgage — has been dropping as the housing market has recovered, but more than 4 million U.S. homeowners owe the bank at least 20% more than their homes are worth, totaling $579 billion of so-called negative equity, according to real estate company Zillow. “Homeowners who remain underwater will likely be the toughest to free from negative equity,” says Zillow chief economist Stan Humphries. 

The rate of underwater homeowners is much higher among the homes with the least value, according to Zillow, which uses data from credit bureau TransUnion. More than 25% of those who own the least valuable third of homes were upside down, compared with about 8% of the most valuable third of homes. In Atlanta, 46% of low-end homeowners were underwater, compared with 10% of high-end homeowners. In Baltimore, 32% of low-end homeowners were in negative equity, compared with 9% of those who own the highest-value homes.

DYI

The Great Wait Continues...

Margin Debt to GDP at NYSE More Than the Dot-Com Bubble High! The Final Stock Market Crash Signal is Here!

Finally the real New York Stock Exchange (NYSE) as a percentage of US GDP rose to new highs – going over the previous high set on March 2000, more than 15 years ago when the dot-com bubble was at peak! As you know Debt to GDP is one of the best measures for market sentiment and is connected to the market. Once the market starts going down quickly, it reinforces a vicious cycle where the margin debt goes down and the market follows and so on. 

This ratio is one of the few followed by many legendary macro traders. Its always worth keeping an eye on it and it usually peaks after making new all-time high as every central banks induced bubble is bigger than the previous.

Currently the margin debt of the NYSE expressed as a percentage of US GDP is 1.85 times higher than the median for the past 292 months of 1.55%. A debt/GDP ratio margin of 2.38% equate to a 90 percentile – A debt/GDP ratio of 2.38% is considered by NIA to be “really dangerous”, which implies that the stock market is risking a dramatic fall in the short-term. The debt/GDP margin in 2000 was for about six month in very dangerous territory, in 2007 the ratio it was in very dangerous territory for just 3 months.

DYI

Revealed: The world's cheapest stock markets 2015

We update our stock market map ... and find there are only three 'cheap' stock markets, down from seven a year ago

As the chart shows, just three countries – Japan, Russia and Turkey – out of 35 assessed now meet our bargain criteria.

CLICK HERE FOR A LARGER VERSION OF THE GRAPHIC ABOVE

P/e ratioThe most widely used calculation, this ratio compares a company’s value with its profits. To work it out, you take the share price and divide it by the annual earnings-per-share figure.The lower the figure, the cheaper the share. 

Cape ratioThis is the p/e ratio, but with a twist. Instead of using earnings over 12 months, this measure takes the average earnings figure over the previous 10 years. The Cape ratio strips out short-term anomalies, addressing the criticism levelled at the p/e that it is based on a “snapshot” of companies’ profitability, taking no account of the business cycle. Our regular columnist James Bartholomew, see below, has used Cape to inform some of his investment decisions. 

Price-to-book ratioInstead of looking at earnings, this ratio examines how a company’s market value compares with the value of its assets – the value of all the buildings, machinery and intangible assets if sold today. As with the other two measures, a low score signals that a stock market or share is undervalued, with a figure below one suggesting that the company is worth less than the sum of its parts.

Russia and Japan, still viewed as cheap on all three measures, have also performed extremely well, up 90pc and 20pc. But both markets are at least 30pc away from previous peaks. Turkey, however, has made little headway, up just 2pc. 

Out of the three cheap countries identified, Japan was named as the standout long-term opportunity by Laith Khalaf, a senior analyst at Hargreaves Lansdown, the investment broker. 

“Cheap stock markets can become even cheaper, particularly niche markets such as Russia and Turkey, so it is prudent to take a step back and consider the pros and cons of investing in each region,” he said. 

The cheapest way to play the market is through a tracker fund or an ETF, which follows the ups and downs of a stock market index. Fidelity Index Japan, which costs 0.12pc a year, is the cheapest.

DYI Comments:  This blog as you may well know is a big fan of Vanguard Funds.  Their Pacific Stock Stock Index Fund Admiral symbol VPADX is not a pure play but currently holds 58% in Japan.  Here is the break out from their web site.

Japan 58.0%  Australia 17.7%  Korea 10.7%

Hong Kong 9.5%  Singapore 3.6%  New Zealand 0.5%

Other 0.0%

For 100% pure play for Japan take a look at the Matthew Asia Funds their Japan Fund symbol MJFOX is a stand out.

DYI

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Massive QE over the years from the Fed's, Bank of England, European Central Bank, Bank of China, and Bank of Japan has spawned asset bubbles world wide especially in real estate plus stock and bond markets.

Australia’s “Largest Housing Bubble on Record” in 4 Charts

 Australia’s households are the third most indebted in the world, relative to GDP, after having passed the Netherlands in 2014. Aussies are now closing in on the leader of the pack, Denmark, and second place, Switzerland. 

“Given the current boom in Sydney and Melbourne, it is possible Australia will soon exceed Switzerland to become 2nd, and with enough time, perhaps 1st,” write Lindsay David and Philip Soos in a new report by LF Economics (entire report for free here). 

By the end of 2014, Australia’s unconsolidated household-debt-to-GDP ratio reached 118%. But it’s not because Aussies ran up their credit cards. Personal debt (credit cards, auto loans, and personal loans), after soaring in spurts and starts from 5% of GDP in 1976 to 13% of GDP in 2007, has since plunged back to just over 8% GDP, the lowest since the mid-1990s. 

What they did run up was mortgage debt. It funded, as the report puts it, “the largest housing bubble on record.” 

 

In both Melbourne and Sydney, the ratio of home prices to household incomes, a measure of housing affordability, has more than doubled since the mid-1990s, showing just how rapidly home prices have run away from incomes:

DYI Comments:  At 9 and 11 times income(Melbourne, Sydney) as compared to the U.S. at 3.3 times income paying off the home would be insane.  My recommendation for a homeowner down under is to put your house up for sale and hopefully find a greater fool to buy your home and then rent.  For young couples looking to purchase that first house, hold off and rent, plowing on as much savings into ultra conservative investments.  Why ultra conservative investments?  For when this bubble pops Australia will endure massive deflation.  Return of your principal will be far more important than the return on your principal.  I wish the Australian well they are going to need it!

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The $6.5 Trillion China Rally That’s Making Stock-Market History

It’s enough money to buy Apple Inc. eight times over, or circle the Earth 250 times with $100 bills. 

The figure, $6.5 trillion, sums up the value created in just 12 months of trading on Chinese stock exchanges -- and why some see a rally that’s gone too far. 

As China’s boom surpasses the headiest days of the U.S. Internet bubble, signs of excess are cropping up everywhere. Mainland speculators have borrowed a record $348 billion to bet on further gains, novice investors are piling into shares at an unprecedented pace and price-to-earnings ratios have climbed to the highest levels in five years. The economy, meanwhile, is mired in its weakest expansion since 1990. 

“We have a wonderful bubble on our hands,” said Michael Every, the head of financial markets research at Rabobank International in Hong Kong. “Of course, there’s short-term money to be made. 

But I fear it will not end well.”

1929 Crash

At the height of Japan’s rally in 1989, for example, the nation’s market capitalization reached 145 percent of gross domestic product, versus an estimated 87 percent in China today, according to data from the World Bank and International Monetary Fund. The Dow Jones Industrial Average climbed for five straight years in the run-up to the crash of 1929, adding more than 200 percent. 

On top of price appreciation, China’s $9.7 trillion market is getting a boost from a wave of new share sales. Mainland companies have raised at least $56 billion this year, according to data compiled by Bloomberg. 

Optimists are betting that China’s Communist Fascist Party will keep the rally going to help more businesses tap the stock market for fresh capital. Debt levels for Shanghai Composite companies reached the highest since at least 2005 in January.

DYI Comments:  I've been saying for over 5 years that China is a paper tiger and will experience their version of our great depression during the 1930's.  China is NOT a single country but an empire with parts that could very easily leave Beijing's nest during an economic deflationary smash.

Their western Autonomous Regions would be up for grabs first to be incorporated into their Muslin brothers (with the possibility of Indian as well).

Not only western China, Macau, Hong Kong, Shanghai, would far prefer to be be under British or European rule with their excellent property, voting, personal rights, along with courts of adjudication for criminal and contract law.

The southern and south west regions have far more in common with Vietnam, Laos, and Burma (and India).

No doubt for this blogger China will have their 1930's version.  The question is; will the Empire hold together?

DYI  

Study: Social Security in REALLY bad shape

New studies from Harvard and Dartmouth researchers find that the SSA's actuarial forecasts have been consistently overstating the financial health of the program's trust funds since 2000. 

"These biases are getting bigger and they are substantial," said Gary King, co-author of the studies and director of Harvard's Institute for Quantitative Social Science. "[Social Security] is going to be insolvent before everyone thinks." 

The Social Security and Medicare Trustees' 2014 report to Congress last year found trust fund reserves for both its combined retirement and disability programs will grow until 2019. Program costs are projected to exceed income in 2020 and the trust funds will be depleted by 2033 if Congress doesn't act. Once the trust funds are drained, annual revenues from payroll tax would be projected to cover only three-quarters of scheduled Social Security benefits through 2088. 

Researchers examined forecasts published in the annual trustees' reports from 1978, when the reports began to consistently disclose projected financial indicators, until 2013. Then, they compared the forecasts the agency made on such variables as mortality and labor force participation rates to the actual observed data. Forecasts from trustees reports from 1978 to 2000 were roughly unbiased, researchers found. In that time, the administration made overestimates and underestimates, but the forecast errors appeared to be random in their direction. 

"After 2000, forecast errors became increasingly biased, and in the same direction. Trustees Reports after 2000 all overestimated the assets in the program and overestimated solvency of the Trust Funds," wrote the researchers, who include Dartmouth professor Samir Soneji and Harvard doctoral candidate Konstantin Kashin. 

King and the studies' co-authors confidentially interviewed former and current Social Security Administration actuaries involved in the forecasting process as part of their research to figure out why the forecast bias happened since 2000. He noted that actuaries are in the center of a political firestorm over the future of Social Security as lawmakers debate whether to cut benefits, raise taxes or a combination of both. "Actuaries worked really hard at being unbaised," he said. "We find no evidence that they bend to political pressure." 

But the agency's attempts to be unbiased have created a bunker mentality, he said, which lead them to ignore evidence that Americans life expectancy has risen more than they have projected and how that could hurt the future funding of Social Security system.

DYI Comments:  Two political firestorms that will arrive in the 2020's is student loans and Social Security/Medicare.  The Millennials seeking a political/economic relief from their massive indebtedness and the broke Boomer's desperate to maintain some standard of living from Social Security.  It appears that the smaller generation who will be at their peak earnings will shoulder the brunt of the tax load. That group of course is Generation X.  Bottom line they are going to get sucked dry!

DYI