Just One Month To Go!

A post a bit further down on this blog describes the risible and naive reporting by our local Minneapolis newspaper on next January's COLA increase in social security benefits.

Readers of this blog know that the actual increase will be determined by the Bureau of Labor Statistics CPI-W for July August and September of this year in relation to the "baseline" number of 215.495

July's number was 222.686
August's number was just released and it is: 223.326

If the CPI-W holds steady for the next month, that will give us an increase of 3.49%

What do you think? Expecting a big decrease in the next month? Stay tuned!

Now, do you remember the numbers that we found in this March 27 Associated Press article that makes two guesses in one sentence!

... the trustees who oversee the Social Security project a 1.2 percent COLA. President Barack Obama, in his spending proposal for the budget year that begins Oct. 1, projects a COLA of 0.9 percent.

When the actual figure is announced, it is supposed to be a surprise. So, don't tell anyone! Pretend you are as surprised as the Associated Press and the Star-Tribune will be.

Your Home Has Not Increased in Value

I frequently argue with folks who say, "My home has doubled (tripled, quadrupled - you pick it!) since I bought it back in xxxx."

I always ask, "How many bedrooms does it have?" They might say, "four." Then, I say, "And if you sold your home today, you could buy a how-many bedroom home in the same neighborhood?"

Of course, the answer is the same as they now have. Their home has not increased in value. The dollar has decreased in value. And don't forget that they would lose 6% to the Real Estate industry in the process!

O sure, there have been some periods of time when lots of people believed they were experiencing an increase in value. This happened briefly in the 1980s and to an extreme in the early 2000s. But the market settled down both times.

There was a recent "Chart of the Day" that illustrates the return to normalcy:


Ah, but you may ask, "what if I had bought and held." My 1970s home would be worth a lot more!

Nope. That just reflects the increase in home size from around 1000 square feet in 1900 to 1500 square feet in the mid-1970s to over 2000 square feet in the 2000s.

You could probably have made some money in the 2000's swapping Treasuries for homes and back if your timing was good. Hence, TV programs like "Flip This House." But your timing had better be pretty good. Suggestion if you visit the Wikipedia entry for Flip This House - search for the word "fraud."

Social Security Cost of Living Increase for 2012

A post a bit further down on this blog describes the risible and naive reporting by our local Minneapolis newspaper on next January's COLA increase in social security benefits.

Readers of this blog know that the actual increase will be determined by the Bureau of Labor Statistics CPI-W for July August and September of this year in relation to the "baseline" number of 215.495

July's number was just released and it is: 222.686

If the CPI-W holds steady for the next two months, that will give us an increase of 3.37%

What do you think? Expecting a big decrease in the next two months? Stay tuned!

Now, do you remember the numbers that we found in this March 27 Associated Press article that makes two guesses in one sentence!

... the trustees who oversee the Social Security project a 1.2 percent COLA. President Barack Obama, in his spending proposal for the budget year that begins Oct. 1, projects a COLA of 0.9 percent.

When the actual figure is announced, it is supposed to be a surprise. So, don't tell anyone! Pretend you are as surprised as the Associated Press will be.

Government Forecasts Decrease In Consumer Prices

Well, that's what the headline should be on this article from this morning's Minneapolis Star Tribune that includes the phrase:

"... the report projected that the millions of Social Security recipients would receive a small - 0.7 percent - cost of living increase in their benefit checks in 2012."

0.7 percent, thus, is the forecast from the Trustees of the Social Security Funds.

Any other guesses?

Well, let's go back about six weeks to this March 27 Associated Press article that makes two guesses in one sentence!

... the trustees who oversee the Social Security project a 1.2 percent COLA. President Barack Obama, in his spending proposal for the budget year that begins Oct. 1, projects a COLA of 0.9 percent.

Wow! Those trustees change their minds quickly, don't they?

Maybe we should take a look at how the COLA is calculated and then take our own guess. Let's start by looking at an analysis that doesn't come from the payers of the COLA. Let's ask some of the recipients. Here is an analysis from the National Active and Retired Federal Employees Association. They are taking a conservative view and are projecting a number around 2.9% at the moment. But they give us the tools we need to calculate and project the number ourselves. (Social Security COLAs and other Federal pension COLAs are calculated the same way.)

The key to the calculation is the "Consumer Price Index for Urban Wage Earners and Clerical Workers." You can find a table of values for that arcane index right here. It is calculated and updated monthly. For obscure reasons that I won't go into here, the base period is the average of July, August and September of 2008. That number is 215.495

At the end of April, the index was 221.743, an increase of 2.9% Hey, looks like the union got it right!

But let's look at the past few months' performance of the CPI-W:

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep
2011	216.4	217.5	220.0	221.7

The number that is going to be used to be compared to 215.495 to calculate the COLA is the average of July, August and September. Looking at the trend for the first four months of the year, what is your guess? I'd say we will probably be looking at 225. That would give us 225/215.495 and there would be a 4.4% COLA increase coming in 2012. What is your guess? Whatever it is, it is bound to better than the StarTribune's. Any number between 2.9 and 5.0 should be in the ballpark.

Will some/most/all of it get eaten up by an increase in Medicare Part B premiums? Sure, but that's an entirely different story.

Look for an update on this post in the Fall, when the actual COLA number is announced. And you can be 100% certain that the word, "unexpected" will appear prominently in both the AP and Star Tribune stories that will accompany the announcement.

UPDATE: June 17
Yesterday's release of the May CPI figures gave us:
May 222.954 - that puts us a bit ahead of the game for my forecast. Stay tuned!

Update: July 19
The June CPI figure gave us:
June 222.522 - a slight decrease from May. Steady at that number would result in a 3.3% COLA adjustment. The next three month's values for the CPI-W are the actual numbers that will be used. I'll start a new post for those.

Unemployment Numbers

I recently received a "chain" e-mail encouraging me to tell the evil Republicans to quit opposing the extension of unemployment benefits. I hastened to point out to the sender that Republicans weren't opposed to extending the benefits - they just thought that maybe they should be made out of something other than thin air.

Even Rush Limbaugh didn't oppose the concept:

RUSH: Right, but you look around and you don't see the ruling class showing even any concern about the people of Arizona and what they're going through. They don't show any concern for the people who are unemployed. They continue, in fact, to attack Republicans for not extending unemployment compensation benefits. And Scott Brown, God bless him. Scott Brown, Ted Kennedy's replacement in the Senate, the guy that won from the Republican Party in January, has come up with an alternative plan, as a Republican, to extend unemployment compensation benefits. And the Senate Democrats won't hear of it. They won't even talk to him about it. And poor old Scott Brown is saying, "Why is it that I'm always the one that has to vote with the Democrats?" I'm not making this up. ...

But I though it might be time for another look at the numbers. A little "forecast vs. actual" exercise:


But a look at this chart shows us a much greater concern.


Extending unemployment benefits and longer unemployment. Cause and Effect or Effect and Cause? You make the call!

Can't decide? Maybe this cartoon from Michael Ramirez will help.

600 Is The Number

Yes, that's right. If you own a small business (or maybe you patronize one) expect a flurry of new paperwork starting after January 1, 2012.

Now, if I sell my lone Krugerand to a coin dealer after 1/1/2012, he is going to send me a 1099. I'd better sell before then.

Expect a gold price decline in late 2011!

Same for stamps and other collectibles. And shorting eBay might be a good strategy too! And going long on Unemployment Futures and shorting Small Business could be other moneymakers!

Creative Lying at The Atlantic

Michael Kinsley published an article on the Estate Tax yesterday. His final sentence certainly gives us his mindset: "Obviously, though, a rate of zero is insufficient."

Well, then. Let's look at a bit of his facts.

Kinsley states:

In 2001, before the Bush tax cut, a married couple could pass on $1.35 million tax-free--plus ...

And just how would they do that? Well they would simply insure that all their assets were divided neatly into two piles, one in each of their names and each pile totaled exactly $675,000. Then, they each need a will that passes along all of their pile to their designated heirs. Simple, yes?

How often do you re-juggle the piles? Each time the market rises? And Dad's stamp collection? And mom's jewelry?

O, and if the one with the home in their pile inconveniently dies first, do the heirs just sell and divide and have the sheriff evict the other parent?

My, real life is more complicated than Kinsley knows isn't it? Face it, no couple could pass on $1.3 million to their heirs tax free without all of their assets in cash in two bank accounts.

These kinds of problems came into play at levels well below total assets of $1.3 million. More than $675,000 but not much more. And just how huge a home did one have to own in California in 2001 before its value alone exceeded $675,000 and put people in this position? The San Francisco Bay Area had a median home price of $484,000.

And why is a zero rate insufficient? Because Kinsley has need of the money for better purposes than Joe the Plumber's children?

The Cost of Health Care

Much of the concern with our present healthcare / healthinsurance system seems to center around cost.  "Bend the curve" of cost increases says the president - without much evidence that the bill before congress will do any such thing.

But why are the cost rising?  Carpe Diem, one of my favorite econ-blogs notes the increased use of "other people's money" as a cause.  And it probably is part of the problem.  But there are two fundamental issues that are easily overlooked.

First, there are a lot more older Americans than there used to be.  Frankly, it's us "old farts" that use the expensive parts of health care.  Treating my heart attack is more expensive than setting my son's broken leg.  And let's not forget the mom-in-law's hip replacement.

Remember that image of the babyboomers dominating the market for consumer goods twenty years ago?  Guess where they are now?

 

And the second reason for increased costs?  Well, we now can do something for the old folks.  Remember grandpa's treatment for a bad hip?  He got a cane.  Mom-in-law got a hip replacement.

When president Eisenhower suffered a heart attack in 1955, the standard treatment was six months of bed rest.  I believe that Mamie was instructed to cuddle up and "keep him warm!"  Today, we would have seen a stent inserted at a minimum but more likely a triple or quadruple bypass.

The reason we spend more money on healthcare is because:

• It's possible
• It's effective
• We have the money

The only real question is should I pay for my own stent or should I charge it to your children and grandchildren?  That's what the debate is really about.  And that's where professor Perry's "Other Peopl's Money" chart comes in.

(Note cross-posted at my Tom's Rants blog)