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Trillions of Paper and a $1,000 Wager – Bruce Krasting

Social Security is sitting on a $2.8Tn portfolio of T Bills and Notes. Take a guess on how much of that was ‘turned over’ (redeemed/acquired/matured) in June of 2013?

$600 Billion! 22% of the nut went back in forth in a single day. That blows my mind.  A pic of the “transactions” that took place:


Screen Shot 2013-07-10 at 2.12.18 PM


It gets worse. Each of the transactions results in flurry of printing activity at the the Bureau of Public Debt’s offices in Parkersburg, West Virginia.  New debt certificates are created; the old ones are stamped “Redeemed”.  The whole pile of paper is stored in endless filing cabinets. The building where all of this printing takes place:




George Bush went to Parkersburg to visit all that paper in 2005. This pic is GB studying one of the certificates.  (Note those high tech locks that keep this paper “safe”.)




This printing/storing of paper and all that turnover is insane. The history of this goes back to the 30′s when there were no computers, and everything was done in a ledger. But that was 75 years ago. The calculations for the annual re-balancing of the SS portfolio could be done with a computer no bigger than a cell phone. And all that paper shuffling in Parkersburg is just a waste of money.

SS’s holdings of all that paper is part of part of the “debt we owe ourselves”. Actually it is just debt that is owed, it’s no different than the IOUs out to China. There are a total of 230 Trust Funds (SS is the largest), the total of this debt is now $4.8Tn. The other Trust Funds were also redeeming old and creating new paper in June. Total turnover of this paper was in the range of $1Tn for all of the Funds. It must have been a record month down in Parkersville; they were probably drinking Champagne when the month was over.

You would think that somebody in D.C. would look at the way SS keeps its books down in West Virginia. I would defy any of those Pols to look at all of the paper that is created and conclude that it’s being done in an efficient and intelligent way. It would take an act of Congress to modernize what is now being done. There is not one chance in a 1,000 that it will happen.

I would love to hear one of those Senators or Congressmen successfully defend the status quo of the Parkersville boondoggle.  I would be willing to contribute $1,000 to the campaign coffers of the first Politician who stands up and tries to defend what is going on. I think my $1,000 is safe, no fool would try to defend this, not even a fool from Washington.

SSA “bought” $178 BILLION of bonds due in 2028 at measly 1.75%. This return is going to be less than inflation. The market yield for 15-year Treasury paper is 3%. SSA is underwater on this bond by 1.25%, that comes to a revenue loss of $2.3Bn every year. Blame this result on a 50-year old formula and Bernanke’s endless squeeze on interest rates.

The SSA saw some of its best assets mature during June. A total of $94Bn high yielding paper (Average yield = 5.25%) went off the board. It was replaced with 1.75% paper. The loss of income from the redemptions comes to a cool $3.3Bn a year. That is chump change at SSA – but it will happen again next June when another chunk of high coupon paper rolls off the books. If you listened to Bernanke last week, you would have to assume that short rates are pegged at Zero for at least another two years, and good old Ben is not going to let the long end get above 3%. Before the monetary madness ends, most of SSAs decent bonds will be gone.

$400Bn with a current average yield of 5.4% will mature in the next two years, the resulting drop in income will be $14Bn a year. Given that this is a permanent (15 years) impairment of income, the run off in assets is going to add up. A view of the portfolio and what is rolling off:


The pollution of interest income for savers like SS is well understood by Bernanke and his cohorts at the Fed. But they never talk about this ‘cost’ to the country’s future. They just harp on all of the benefits that low interest rates deliver, like renewed housing bubbles in places like Vegas and ever higher stock prices. I estimate that the cost to just SS of the Fed’s actions will add up to over $300Bn before the Fed folds its cards and ends QE and ZIRP. $300Bn ain’t chump change. I wish it was not just me singing in the wind over the true cost of what the Fed is doing.



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