Future Cuts to U.S. Social Security

[Parsad]

https://finance.yahoo.com/news/warren-buffett-longtime-social-security-172041590.html

 

Cheers!

[gfp]

100% a political choice.  Social security or the US government does not "run out of US Dollar money."  Social security's "assets" are IOUs of the Federal Government.  It is a political choice what to provide to retirees.

[Red Lion]

43 minutes ago, gfp said:

100% a political choice.  Social security or the US government does not "run out of US Dollar money."  Social security's "assets" are IOUs of the Federal Government.  It is a political choice what to provide to retirees.

 

And both parties will make the political choice to keep paying out full social security benefits which will get borrowed from somewhere. Congress will likely do some sort of reform of the system when that political choice is eventually made, and then those of us who aren't retired will likely get a new status quo for social security payments. 

 

It seems that over the next 15-20 years there is going to need to be some "fiscal dominance" and inflating away of the deficit. I've always thought real estate is a good long term hedge for this situation, but there are obviously other moving parts with real estate. 

[gfp]

1 hour ago, Red Lion said:

which will get borrowed from somewhere

the dirty little secret is they don't even need to borrow it.  why would be government need to borrow their own "money" in order to spend?  It's a choice to issue treasury securities.

[Red Lion]

1 hour ago, gfp said:

the dirty little secret is they don't even need to borrow it.  why would be government need to borrow their own "money" in order to spend?  It's a choice to issue treasury securities.

I agree. Obviously congress can print money. I just think it’s more likely that we keep borrowing, rates move lower due to necessity, and we have a period of deleveraging through nominal (and hopefully real) gdp gains. 
 

Whether the fed plays along over the next few years I couldn’t say, but it seems a more likely outcome sometime in the next 10-15 years than outright money printing to me. 
 

[wabuffo]

the dirty little secret is they don't even need to borrow it.  why would be government need to borrow their own "money" in order to spend?  It's a choice to issue treasury securities.

 

Couldn't have said it better myself!  You've mastered the concepts, gfp, and are no longer a monetary plumbing apprentice.  

 

Bill

[73 Reds]

6 hours ago, Red Lion said:

I agree. Obviously congress can print money. I just think it’s more likely that we keep borrowing, rates move lower due to necessity, and we have a period of deleveraging through nominal (and hopefully real) gdp gains. 
 

Whether the fed plays along over the next few years I couldn’t say, but it seems a more likely outcome sometime in the next 10-15 years than outright money printing to me. 
 

Agreed.  Once benefits vest, those benefits will not be cut.  They can play around with the age of eligibility but otherwise it would be political suicide. Prognostications as to when social security would need to be cut are downright silly and based on someone's idea of current numbers that will likely change more than anyone can possibly predict.  And the Govt. can get the money from any number of sources, some of which may not even exist now.  

[Blugolds]

2 hours ago, wabuffo said:

the dirty little secret is they don't even need to borrow it.  why would be government need to borrow their own "money" in order to spend?  It's a choice to issue treasury securities.

 

Couldn't have said it better myself!  You've mastered the concepts, gfp, and are no longer a monetary plumbing apprentice.  

 

Bill

 

Are you guys referring to MMT?  

[wabuffo]

Are you guys referring to MMT?  

 

Chartalism.  

 

A merger of two old economic models:

1) State Theory of Money (1905) - Georg Friedrich Knapp 

2) Credit Theory of Money (1914) - Alfred Mitchell-Innes 

 

Bill

Edited July 30, 2025 by wabuffo

[KJP]

1 hour ago, wabuffo said:

Are you guys referring to MMT?  

 

Chartalism.  

 

A merger of two old economic models:

1) State Theory of Money (1905) - Georg Friedrich Knapp 

2) Credit Theory of Money (1914) - Alfred Mitchell-Innes 

 

Bill

 

What likely happens in that scenario?  It seems like it would create a big increase in bank reserves if there were no treasury issuance (or additional taxation) to soak them up.  If the Fed paid no interest on those reserves, the interest rate paid to depositors seems like it would also trend toward zero, increasing the relative demand for anything with yield.  Would that also likely result in the dollar falling rapidly relative to other currencies/commodities, resulting in significant declines in real purchasing power even if nGDP continues to rise?  

Edited July 30, 2025 by KJP

[wabuffo]

What likely happens in that scenario?  It seems like it would create a big increase in bank reserves if there were no treasury issuance (or additional taxation) to soak them up.  

 

The Federal Reserve would/could just go unlimited reverse repo as its balance sheet expanded.   In effect, reverse repo is the central bank issuing overnight, revolving "debt".  

 

I've often said that the Fed should also be able to issue short-term debt as another lever for its monetary policy.   I think that's a better mechanism vs bank deposits in terms of offering safe cash equivalents to the private sector and its ever larger cash pools.

 

Bill

[TwoCitiesCapital]

If we all just pretend that money printing and debt don't matter, you'll be right all the way up to the point it blows up spectacularly - either via default or inflation. 

 

I think that basically sums up what everyone here is saying. 

[Red Lion]

1 hour ago, TwoCitiesCapital said:

If we all just pretend that money printing and debt don't matter, you'll be right all the way up to the point it blows up spectacularly - either via default or inflation. 

 

I think that basically sums up what everyone here is saying. 

 

Pretty much...hasn't that been the default for many decades?

 

Short of doing a massive entitlement reform, what's the alternative? 

 

Do you see massive entitlement reform in the cards? 

 

How to raise enough revenue to lower debt/gdp without actually causing a deep recession? VAT? Tariffs? More payroll taxes? Selling minerals? Renting out our armed forces? 

 

I feel that the default or inflation is nearly inevitable, history and politics favor inflation over default. 

[TwoCitiesCapital]

9 minutes ago, Red Lion said:

 

Pretty much...hasn't that been the default for many decades?

 

Yes. But inflation has been what has worked out over those decades. Gold has basically held its own against stocks for the last 20-30 year period.

 

9 minutes ago, Red Lion said:

 

Short of doing a massive entitlement reform, what's the alternative? 

 

Do you see massive entitlement reform in the cards? 

 

I don't. The problem with democracies is they can't do the difficult things because they're unpopular and painful. But that is the only correction for previously having allowed yourself to do reckless things like run massive deficits on peace times with strong economy.

 

Hindsight is 20/20, but this was the predictable long term outcome the moment we left the gold standard and became the reserve currency untethered to any real economic production. 

 

9 minutes ago, Red Lion said:

I feel that the default or inflation is nearly inevitable, history and politics favor inflation over default. 

 

Yup. Prepare accordingly. I'll take this moment to beat the drum I was beating in 2022 - stocks are NOT a great inflation hedge. So invest accordingly. 

 

The 1970s were one of the worst decades of real returns for stocks in history. The inflation shock of 2021 left nominal earnings below their 2021 peak until Q4 2024. Inflation adjusted earnings STILL haven't recovered. If prices ever adjust to reflect that contraction, the indices themselves will also prove to have been poor performers over that time. 

 

Invest accordingly. 

[Gregmal]

Checks notes, SPY late 2021…4700, SPY late 2022…4000.
 

Yup “that not an inflation hedge” argument, even when monumentally cherry picked on the timeline side….still just as wrong as it was 3-4 years ago. Why do we want so badly for it to be true?

14 minutes ago, TwoCitiesCapital said:

I'll take this moment to beat the drum I was beating in 2022 - stocks are NOT a great inflation hedge.

 

[TwoCitiesCapital]

1 hour ago, Gregmal said:

Checks notes, SPY late 2021…4700, SPY late 2022…4000.
 

Yup “that not an inflation hedge” argument, even when monumentally cherry picked on the timeline side….still just as wrong as it was 3-4 years ago. Why do we want so badly for it to be true?

 

 

You'll be right if multiple expansion can continue to infinity. 

 

I tend to believe it's revenues and profits that matter for long term durable returns and they haven't been there nor hedged inflation. 

 

Even Apple, supposedly one of the best companies in the world has had flat nominal earnings and a large contraction in real earnings growth over that period. 100+% or it's stock returns have been multiple expansion. That's not an inflation hedge - that's rampant speculation. 

 

Most names outside the mag-7 have been pretty abysmal in nominal returns for the last 5 years. Real returns are even worse. I don't have to be proven right - I already have been. Small caps have been terrible. Mid caps have been terrible. Value has been terrible. Only the mag-7 and a few cherry picked examples have done well and Bitcoin and gold probably did better for most then even some of those cherry picked examples

 

 

Fortunately the equities I have owned have been some of those cherry picked examples. The currency kicker of most of them being int'l helped further. And fortunately for me, I owned gold and Bitcoin. And fortunately for me, the bonds I've owned over the same period have outperformed most equities we could be looking at

Edited July 31, 2025 by TwoCitiesCapital

[TwoCitiesCapital]

"sToCkS aRe An InFlAtIoN hEdGe"

 

 

[TwoCitiesCapital]

"sToCkS aRe An InFlAtIoN hEdGe"

 

[TwoCitiesCapital]

"sToCkS aRe An InFlAtIoN hEdGe"

 

[TwoCitiesCapital]

13 minutes ago, TwoCitiesCapital said:

"sToCkS aRe An InFlAtIoN hEdGe"

 

 

Would go even further to say this chart is inflated itself - because names like NVDAs revenues/profits are CaPEx of other companies. So every $ of revenue/profit NVDA is booking today is going to be written of via depreciation over the next 3-5 years by other companies. So this is counting those earnings, but not reflecting that future earnings will be reduced by the same amount as a result. 

 

 

Edited July 31, 2025 by TwoCitiesCapital

[Gregmal]

All I know is you’ve gone to incredibly great lengths over the last few years to make this case, using rather thin arguments that no one else really attempts to make, and need to go to great lengths picking start dates and modifying/adjusting numbers to do so, and I’m perplexed as to why this is such a strong personal thing for you? 
 

For example above, if we get “multiple expansion” you state, but even in to the bottoms in 2022 you predicted multiple contraction. Pretty much the whole way thru 2023/4 as well. Or if we switch out the chart and compare specific indexes to gold…. but why stop there? Why not just pick anything that’s done well or poorly that suits an argument? Or “if we eliminate the things that have done well”, or “there’s a lot that’s underperformed”….Or the I traded “abc and xyz” but if the argument devolves into purported short term speculating on individual securities, does anything more macro even matter at all? I mean at best the above amalgamation is basically a modern day “if you bought Microsoft or Cisco at the top of the tech. Bubble in 99…..” argument, one I’ve often found bizarrely bullish because rephrasing it, it’s basically stating “if you try your best to pick the worst times to invest, this is how arcane you need to get on a historical basis for it not to work”. And even then, it’s easily, easily mitigated by basic DCA approaches.
 

 

[TwoCitiesCapital]

16 minutes ago, Gregmal said:

All I know is you’ve gone to incredibly great lengths over the last few years to make this case, using rather thin arguments that no one else really attempts to make, and need to go to great lengths picking start dates and modifying/adjusting numbers to do so, and I’m perplexed as to why this is such a strong personal thing for you? 

 

 

I didn't cherry pick a start date, Greg. I picked the last 5 years since the inflation  shock started in 2021. You're hard pressed to find any date in the last 5-years on those charts that was higher than 2021. That's not cherry picking, Greg. That's a secular theme of stocks underperforming true inflation hedges. I'm sorry your ego prevents you from seeing that. 

 

16 minutes ago, Gregmal said:

For example above, if we get “multiple expansion” you state, but even in to the bottoms in 2022 you predicted multiple contraction. Pretty much the whole way thru 2023/4 as well.

 

Yes. I do expect multiple contraction at some point. It hasn't happened yet. Sue me. I own that the timing has been hard. I've made returns elsewhere. 

 

People used 0% interest rates to justify elevated multiples for a decade. We no longer have them and multiples are even higher.l and people are now justifying it by saying stocks hedge inflation - which clearly they havent. Not in the 1970s and not today.

 

While contraction hasn't happened yet, I find it an even thinner argument that it'll never happen or multiples will continue to expand into infinity which is largely what YOU need to happen to be right at this point since real earnings growth is non-existent, multiples are stretched, and bonds have a significant advantage on starting yields. 

 

 

16 minutes ago, Gregmal said:

 

Or if we switch out the chart and compare specific indexes to gold…. but why stop there? Why not just pick anything that’s done well or poorly that suits an argument?

 

Because we're picking an asset that has widely been recognized as an inflation hedge for decades and comparing its performance to the so called "inflation hedging" abilities of stock generally. Why is this so hard to understand? 

 

16 minutes ago, Gregmal said:

”. And even then, it’s easily, easily mitigated by basic DCA approaches.

 

DCA'ing gold probably still did better

 

The crux of your entire argument here is "why are we limiting the observation period to an inflation shock and comparing to other inflation hedges when discussing relative inflation hedging performance" 

Edited July 31, 2025 by TwoCitiesCapital

[Gregmal]

11 minutes ago, TwoCitiesCapital said:

didn't cherry pick a start date, Greg. I picked the last 5 years since the inflation  shock started in 2021. You're hard pressed to find any date in the last 5-years on those charts that was higher than 2021. That's not cherry picking, Greg. That's a secular theme of stocks underperforming true inflation hedges. I'm sorry your ego prevents you from seeing that. 

The point in time you are using is right before what can conveniently at its simplest be described as a regular old run of the mill correction. Inflation didn’t start in Q4 2021, not even close. @changegonnacome and I had this discussion pretty thoroughly throughout the fall of 2021-2023. Q4 2021s start point ignores the inflation that started emerging in q3 2020 and ignores most of the stock gains that were induced by…inflation. 
 

So yea, if we pick the hind sight chart “top” ignore all the gains that came before then, pretend that the trailing “inflation” only “started” then…and then adjust for other stuff, the returns….blah, blah, blah. 

[TwoCitiesCapital]

14 minutes ago, Gregmal said:

I had this discussion pretty thoroughly throughout the fall of 2021-2023. Q4 2021s start point ignores the inflation that started emerging in q3 2020 and ignores most of the stock gains that were induced by…inflation. 

 

That's just not true

 

Q4 2020 was barely higher than Q4 2019 in terms of overall price index. It wasn't until 2021 that price indices accelerated 

 

At this point in the conversation, I've provided charts, graphs, data all supporting my point - a point I've consistently held since 2021 and which the data has been bearing out. 

 

All you've provided is an opinion and 'line go up' (but not up as much as true inflation hedges nor supported by fundamental improvements in earnings). 

 

Unless if you have something of substance to debate, I think we're done here. 

 

 

 

Edited July 31, 2025 by TwoCitiesCapital

[Gregmal]

Because you’re making a conspiracy theorist like argument(one you’ve been trying really, really hard to convince everyone of for quite a long time now), cherry picking points, swapping in and out comparisons, and ignoring things that aren’t favorable(such as if you eliminate stocks that did well, then stocks did poorly).
 

The inflation that occurred because of Covid was because of supply chains resulting from shut downs, and stimulus checks, those things occurred in h2 2020 and FY 2021. They were largely worked through the system by summer 2022 which is why the lagging “inflation” so many refer to has done nothing but go down since then. The same period you describe as “inflation”. News flash…despite Jpow crying wolf, 2023/4/5 certainly havent been described as periods of “high inflation” by anyone but you. It’s just not there. Like wasn’t the whole world getting on the Fed for talking about “transitory” throughout the entire 2021 calendar year? And now your argument is plainly “it didn’t exist” until 12/2021-2025???
 

Your argument in support of “stocks are a bad inflation hedge” is more or less “I can find some things that did better than 4000/4700 to current levels over a time period of my choosing”, “you can’t predict multiple compression”, and when I’m wrong “it’s ok because I’ve made all these trades”…

 

I think the track record on this speaks for itself and it’s just a bizarre infatuation that I was just trying to understand, that’s all. Have a good evening.